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1
KBC Group BankDebt presentationNovember 2020
More infomation wwwkbccom
KBC Group - Investor Relations Office ndash E-mail IR4Ukbcbe
2
This presentation is provided for information purposes only It does not constitute an offer to sell or the solicitation to buy anysecurity issued by the KBC Group
KBC believes that this presentation is reliable although some information is condensed and therefore incomplete KBC cannot beheld liable for any loss or damage resulting from the use of the information
This presentation contains non-IFRS information and forward-looking statements with respect to the strategy earnings and capitaltrends of KBC involving numerous assumptions and uncertainties There is a risk that these statements may not be fulfilled andthat future developments differ materially Moreover KBC does not undertake any obligation to update the presentation in linewith new developments
By reading this presentation each investor is deemed to represent that it possesses sufficient expertise to understand the risksinvolved
Important information for investors
3
Market share (end 2019) BE CZ SK HU BG IRL
Loans and deposits
Investment funds
Life insurance
Non-life insurance
GDP growth KBC data Sept lsquo20 Retail segment
2010
2110 910
30 24
7 13 16
8133 3
23
49 108 8
Real GDP growth BE CZ SK HU BG IRL
of Assets
2019
2020e
2021e
4
63
203 3 2
3414 25 24
5549
-80-80-90 -70 -50-62
IRELAND
BELGIUMCZECH REP
SLOVAKIA
HUNGARY
BULGARIA
37m clients507 branches104bn EUR loans137bn EUR dep
03m clients16 branches10bn EUR loans5bn EUR dep
42m clients221 branches28bn EUR loans39bn EUR dep
06m clients117 branches8bn EUR loans7bn EUR dep
16m clients208 branches5bn EUR loans8bn EUR dep
14m clients176 branches3bn EUR loans5bn EUR depBelgium
Business Unit
CzechRepublicBusiness Unit
InternationalMarkets Business Unit
6151 5047 50 40
KBC PassportWell-defined core markets
4
KBC Group NV
KBC Bank KBC Insurance
100100
KBC IFIMA
End of April 2019 the opportunity was taken to simplify the shareholdersrsquo structure of KBC AM the shares of KBC AM held by KBC Group NV (48) shifted to KBC Bank All debt obligations of KBC IFIMA are unconditionally and irrevocably guaranteed by KBC Bank
AT 1 Tier 2 Senior
Covered bond No public issuance
MREL
KBC PassportGrouprsquos legal structure and issuer of debt instruments
Retail and Wholesale EMTN
5
Contents
Roughly 40 of KBC shares are owned by a syndicate of coreshareholders providing continuity to pursue long-term strategicgoals Committed shareholders include the CeraKBC AncoraGroup (co-operative investment company) the Belgian farmersrsquoassociation (MRBB) and a group of industrialist families
The free float is held mainly by a large variety of international institutional investors
186
27
KBC Ancora
Cera74
MRBB
115
Other core
599Free float
SHAREHOLDER STRUCTURE AT END 9M201 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
6
KBC Group in a nutshell (1)
We want to be among Europersquos best performing financial institutions By achieving this KBC wants to become the reference in bank-insurance in its core marketsbull We are a leading European financial group with a focus on providing bank-insurance products and services to
retail SME and mid-cap clients in our core countries Belgium Czech Republic Slovakia Hungary Bulgaria andIreland
Diversified and strong business performancehellip geographically
bull Mature markets (BE CZ IRL) versus developing markets (SK HU BG)bull Economies of BE amp 4 CEE-countries highly oriented towards Germany while IRL is more oriented to the UK amp USbull Robust market position in all key markets amp strong trends in loan and deposit growth
hellip and from a business point of viewbull An integrated bank-insurerbull Strongly developed amp tailored AM businessbull Strong value creator with good operational
results through the cyclebull Unique selling proposition in-depth
knowledge of local markets and profound relationships with clients
bull Integrated model creates cost synergies and resultsin a complementary amp optimised product offering
bull Broadening lsquoone-stop shoprsquo offering to our clients
Diversification Synergy
Customer Centricity
53 52
47 48
20192018
KBC Group topline diversification 2018-2019 (in )
Other income Net interest income
7
High profitability
Solid capital positionhellip
FY19
Net result
2489mEUR 14
ROE
58 90
CI ratio Combined ratio
9M20
902mEUR 759 83
CET1 generationbefore any deployment
271 bps
2018
251 bps
2019
Fully loaded Basel 3 CET1 ratio of KBC Group (Danish Compromise)
1045 Overall Capital Requirement
1Q19
157
1Q20
156
9M201H19 1H209M19 FY19
154171 163 166 166
136
NSFR
138
LCR
146 142
hellip and robust liquidity positions
FY199M20
KBC Group in a nutshell (2)
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
795 theoretical regulatory minimum
8
bull On 28 July 2020 the European Central Bank extended its recommendation not to pay dividends and not to buy backshares until January 2021 In line with the recent ECB recommendation we cannot execute our usual dividend policyAs a consequence no interim dividend will be paid out in Novrsquo20
bull KBCrsquos CET1 ratio of 166 at end 9M20 represents a solid capital bufferbull 86 capital buffer compared with the current theoretical minimum capital requirement of 795 (as a result of the announced ECB and
National Bank measures which provided significant temporary relief on the minimum capital requirements)bull 61 capital buffer compared with the Overall Capital Requirement (OCR) of 1045 (which still includes the 250 capital conservation
buffer on top of the 795)bull 59 capital buffer compared with the Maximum Distributable Amount (MDA) of 1069 (given small shortfall in AT1 and T2 bucket)
bull Any MampA opportunity will be assessed subject to very strict financial and strategic criteria
We aim to be one of the better capitalised financial institutions in Europe
bull Payout ratio policy (ie dividend + AT1 coupon) of at least 50 of consolidated profitbull Interim dividend of 1 EUR per share in November of each accounting year as an advance on the total dividendbull As we find ourselves in unprecedented circumstances and as the economic impact of the coronavirus
pandemic on the economy is still very uncertain it is too early days to make statements about the capitaldistribution to shareholders as it will also depend on different regulatory measures and the stance the ECBwill take later on this yearbeginning of next year
bull We will announce an update of our capital deployment plan together with the FY20 results
Capital distribution to shareholders (usual policy)
KBC Group in a nutshell (3)
No IFRS interim profit recognition given more stringent ECB approach
9
Personalised solutionsUsing data and AI to offer proactivelycompelling relevant and personalisedfinancial solutions
Customer experienceProviding zero-hassle no-frillscustomer experience leveraging ourunique strengths on data-securityand data-privacy
Straight-through processesThis implies re-design of processesand avoiding to digitise the currentones Aim is E2E digital processes
TrustCapitalising on the trust customersplace in us today
Broad offerEmphasising our broad financial offerand ensuring these solutions are Bigtechproof (pro-active convenient amppersonalised)
Beyond bank-insuranceStaying focused on the financial wellnessof our customers and offer services tobecome embedded in our customerrsquosdaily life
Differently the next level
KBC is the reference The winning factors
10
KBC relies on its own products for Financial Servicesie Closed product architecture
KBC relies on 3rd parties for non-financial servicesKBC acts as gate-keeper in these eco-systems
KBCrsquos products and services are top-notchof high standards simple and easy to use (zero-hassle)
Requires investments in E2E processesThese processes need to be digital first
Continuouslyimproving the customer journey bymatching identifiedcustomer needs withhigh-end personalisedproduct amp services that solve these needs
Products and services are top-notch
Differently the next level
11
your digital assistant
The interaction between the customer and Kate will be triggered by data analysis (approval
granted by customer) Kate will be trained on the basis of the customerrsquos
profile preferences and activities
PERSONALISED amp DATA DRIVEN
Kate will only propose offers where sufficient added value is shown or when she can serve the
client in an important moment in the clients live
RELEVANT amp VALUABLE OFFER
Lead journeys driven by time or location are preferably taken care of by Kate as
notifications linked to a specific location or specifying moment in time are perceived as
highly personal
AT THE RIGHT TIME
We will offer the client a frictionless End2End digital process and in doing so
make bankinsurance simple and hassle free
DIGITAL FIRST amp E2E
Kate will help the client saving time andor money focusing more on the convenience
factor Kate will also serve the client regarding security and fraud
SERVING SECURE amp FRICTIONLESS
We want all our clients to meet Kate as much as possible Kate will allow us to reach out to a
sufficient volume of clients in terms of transactions and in terms of number of
targetable audience
VOLUME
lsquoNo hassle no friction zero
delayrsquo Johan Thijs
Hyper personalised and trusted financial digital assistant
12
+
+
The strong basis remains
Differently the next level
13
Bank-insurance+
Differently the next level
14
CORPORATE FINANCE
Strategy remains focused on our 6 core countries where we continue
to look for bolt-on acquisitions
Developing a FinTech network next to partnerships FinTechs can be acquired in order to support the implementation of our strategy by addressing our current white spots
Additionally we reviewed the focus of KBC Securities and are developing an
advisory services franchise adapted to our midcap corporate banking client
base in our core countries whilst allowing a limited expansion as well in our neighboring countries leveraging
on international networks
Differently the next level
Geographical playing field
FINTECHCORE COUNTRIES
15
RetailSME vs SMEcorporate same approach ndash different speeds
SMECorporate
RetailSME
PHYGITALDIGITAL
Trusted partner for financial andlsquostrategically adjacentrsquo services
The human factor remainsparamount throughaccountmanagers with data andtechnology acting as prime levers
a strong regional advisory services franchise
Strategic adjacent services ensurea complete integrated Bank-Insurance + customer journey andoffer
Trusted partner for financial and related services (Bank-Insurance+)
Intelligent digital assistant lsquoKATErsquo that pro-actively takes the hassle to fulfill financial needs away from the client
We offer convenience bysimplifying daily activities
KBC relies on its own solutionsfor financial services For non-financial related services we rely on 3rd parties
Differently the next level
16
Top Management
Priority
Centrallysteered ndash
Group wide
Built in Culture not
bolt on
Embraceinnovation
andtechnology
Compliance Future proofand scalable
Strict client acceptance(KYC) and
transaction monitoring
(KYT) processes
bull Responsible behavior top priority of CEObull Periodic reporting to highest management
levels
bull Increased focus on monitoring and constant quality control
bull First layer of defence is network
bull Advanced data driven detectionbull Advanced monitoring tools using AI
engine (algorithmic self-learning model)bull Rule-based trend-based
bull Compliance groupwide function with clear governance structure
bull Identical building blocks in different countries
bull International cooperation supported by Expertise Board
bull Constantly improving awareness and culturebull Constantly updated rules and policiesbull Career long training and e-learning more general or
dedicated to client facing staffbull Clear guidelines with regards to atypical transactions
bull Part of the integration process in MampAbull Very limited Ndeg of non-resident clientsbull Regular updates of client information
(supported by Big Data and AI)bull Behavioural analysis + use of scenario
tools
Taking AML to the next level
Differently the next level
17
From key priorities to operational targets
KEY PRIORITIE
S
No hassle no frills zero-delay customer experience
Proactive personalizedfinancial solutions via DATA
and AI
Re-design amp automation of all processes
Bank-insurance+
Digital lead management from data driven to solution
driven
Group-wide collaboration
Maximizecustomer
experience
Go forDigital first
Furtherenhance
bank-insurance
Outperformon
operationalefficiency
DATA DRIVEN
CUSTOMER NPS RANKING
STPSCORE
BANK-INSURANCE CUSTOMERS
DIGITAL SALES
Differently the next levelTranslating strategy into non-financial targets
18
Introducing 4 new operational targets (1)
Target is to remain the reference (top-2 score on group level) Based on weighted avg of ranking in six core countries
ge85 of active customers to be BI customers ge27 of active customers to be stable BI customers
BI customers have at least 1 bank + 1 insurance product of our group Stable BI customers at least 2 bank + 2 insurance products (Belgium 3+3)
Top-2 Top-2
current target 23
Customer NPS ranking
77 85
22 27
current BI target 23 currentstable BI
target 23
bank-insurance (BI) clients
Differently the next levelTranslating strategy into non-financial targets
19
Introducing 4 new operational targets (2)
STP ge60 and STP potential ge80The STP-ratio measures how many of the services that can be offered digitally are processed without any human intervention and this from the moment of interaction by a client until the final approval by KBC
STP potential measures what the STP-ratio would be if KBC would only have the digital channel in its interaction with clients for a given process or product
Digital sales ge40 of bank sales Digital sales ge25 of insurance sales
Based on weighed avg of selected core products
2260
3880
currentSTP
target 23 currentSTP
potential
target 23
STP score(straight through processing)
3140
1425
currentbank
target 23 currentinsurance
target 23
digital sales (bank insurance)
Based on analysis of core commercial products
Differently the next levelTranslating strategy into non-financial targets
20
Our sustainability strategyThe cornerstones of our sustainability strategy and our commitment to the United Nations Sustainable Development Goals
Incr
easi
ng o
ur
posi
tive
impa
ct
We are focusing on areas in which we as a bank-insurer cancreate added value financial literacy entrepreneurshipenvironmental awareness and demographic ageing andorhealth In doing so we take into account the local context ofour different home markets Furthermore we also supportsocial projects that are closely aligned with our policy
Lim
iting
our
ad
vers
e im
pact We apply strict sustainability rules to our business activities
in respect of human rights the environment business ethicsand sensitive or controversial social themes In the light ofconstantly changing societal expectations and concerns wereview and update our sustainability policies at least everytwo years
Resp
onsi
ble
beha
viou
r Responsible behaviour is especially relevant for a bank-insurer when it comes to appropriate advice and salesTherefore we pay particular attention to training (includingtesting) and awareness For that reason responsiblebehaviour is also a theme at the KBC University our seniormanagement training programme in which the theory istaught and practised using concrete situations Seniormanagers are then tasked with disseminating it throughoutthe organisation
21
bull The Group Executive Committee reports to the BOARD OF DIRECTORSon the sustainability strategy including policy on climate change
bull The INTERNAL SUSTAINABILITY BOARD (ISB) is chaired bythe Group CEO and comprises senior managers from all business unitsand core countries the Group CFO (as chairman of Sustainable FinanceSteering Committee) and the Corporate SustainabilityGeneral Manager The ISB has group-wide decision rights on allsustainability-related issues (including our climate approach) and is themain platform for driving sustainability at group level It debates andtakes decisions on any sustainability-related matter both at a strategiclevel and in more operational terms
bull The CORPORATE SUSTAINABILITY DIVISION is headed by the CorporateSustainability General Manager and reports directly to the Group CEOThe team is responsible for developing the sustainability strategy andimplementing it across the group The team monitors and informs theExecutive Committee and the Board of Directors on progress twice ayear via the KBC Sustainability Dashboard
bull A SUSTAINABLE FINANCE PROGRAMME to focus on integrating the climate approachwithin the group It oversees and supports the business as it develops its climate-resilience in line with the TCFD recommendations and the EU Action Plan
bull The programme is overseen by a SUSTAINABLE FINANCE STEERING COMMITTEEchaired by the Group CFO Via the KBC Sustainability Dashboard progress isdiscussed regularly within the Internal Sustainability Board the Executive Committeeand the Board of Directors The latter is used to evaluate the programmersquos statusreport once a year
bull In addition to our internal organisation we have set upEXTERNAL ADVISORY BOARDS to advise KBC on variousaspects of sustainability They consist of experts from theacademic world
bull An EXTERNAL SUSTAINABILITY BOARD advises theCorporate Sustainability Division on KBC sustainabilitypolicies and strategy
bull An SRI ADVISORY BOARD acts as an independent body forthe SRI funds and oversees screening of the sociallyresponsible character of the SRI funds offered by KBCAsset Management
External Sustainability Board amp SRI Advisory Board
Country Coordinator Corporate Sustainability
Sustainable finance Program
Board of Directors
Executive Committee
Senior Representatives from Finance and Risk functions
together with Sustainability Experts
KBC Group Corporate Sustainability team
Our sustainability strategySustainability embedded in our organisation
Internal Sustainability Board
22
Our ESG ratings
Latest Score(11 Nov 2020)
CDP A- Leadership
FTSE4Good 465
ISS Oekom C Prime
MSCI AAA
Sustainalytics Low Risk 4th percentile of 385 diversified banks (Nov 42020)
SampP Global -RobecoSAM
72100
Vigeo Eiris Not publicly available
Our sustainability strategyWe substantially raise the bar for our climate-related ambitions
More than doubling of SRI funds by lsquo25 SRI funds ge 50 of new fund production by lsquo21
Target raised from 50 to 65 by lsquo30
Target raised from 90 to 100 by lsquo30 Target reduction of own emissions raised from 65 to 80 by lsquo30
KBC will achieve full climate neutrality as of the end of 2021 by offsetting the balance
7 9 12 14
30
2017 20192018 targetrsquo251H20 targetrsquo302018
57
20192017 1H20
41 4457
65
Volume of SRI Funds(In billions of EUR)
Renewable energy loans(In of total energy-sector loan portfolio)
252
8634 36 26
2016 1H202017
0
2018 2019 2021
Direct coal-related finance(In millions of EUR)
Proven track record in building down direct coal exposure
Firm commitment to exit coal supporting existing clients in their transition
Green electricity(In of own electricity consumption)
78
1H20 targetrsquo30
100
2017 2018
83
2019
74 83
Reduction own GHG emissions(In compared to 2015)
50
2019 targetrsquo30
29
2017 2018
38
80
Full Exit
23
Our sustainability strategyLatest achievements
2019 achievementsbull We signed the Collective Commitment to Climate Action an
initiative of the UNEP FI (Sep 2019)bull The entire range of KBC sustainable funds is fully compliant with the
Febelfin quality standard for sustainable investment bull KBC signed the Tobacco-Free Finance Pledge drawn up by the
international organisation Tobacco Free Portfoliosbull KBC signed the lsquoOpen letter to index providers on controversial
weapons exclusionsrsquo ndash an investor initiative coordinated by Swiss Sustainable Finance
bull We continued to build on lsquoTeam Bluersquo ndash a group-wide initiative at KBC to strengthen ties and promote cooperation among all the grouprsquos staff in the different countries in which KBC operates
Sustainable finance(KBC Group in millions of euros)
2019 2018
Green finance
Renewable energy and biofuel sector 1 768 1 235
Social finance
Health care sector 5 783 5 621
Education sector 975 943
Socially Responsible Investments
SRI funds under distribution 12 016 8 970
Total 20 542 16 769
For the latest sustainability report we refer to the KBCCOM websitehttpswwwkbccomencorporate-sustainabilityreportinghtml
2020 achievementsbull Update of the KBC energy policy and implementation of biodiversity
policybull Asset management joins the Climate Action 100+bull KBC CBC and the European Investment Bank (EIB) together make
300m EUR available to Belgian SMEs for sustainable loan (focus on climate and agriculture lending)
bull Solar panels on roof KBC building (BE)
24
bull The first results of the pilot indicate that KBC appears to be less exposed to industrial groups active in the 7 high-carbon sectors (fossil fuels power automotive shipping aviation cement and steel) compared to the 16 other PACTA pilot banks
bull KBC is involved in a project to further develop the methodology used within the UNEP FI programme The goal of which is to identify the physical risks arising from certain climate scenarios for the most significantly affected sectors in our loan portfolio We have begun the analysis of physical risks for mortgage loans in Flanders and transition risks for the metals sector
Pilots
bull In 2019 we began to pilot the PCAF methodology to calculate the carbon footprint of the portfolios car lease car loans mortgage loans for residential real estate and commercial real estate
We have launched 3 pilot projects (PACTA PCAF and UNEP FI) working on a series of tools and methodologies (1) to enhance our ability to identify and to translate climate-related risks and opportunities in our strategy(2) quantify the indirect impact of our most carbon-intensive sectors and business lines
Our sustainability strategyPreparing for a science-based approach
25
Contents
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT
30 SEPTEMBER 2020
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
63
15
21
Belgium
Group Centre
Czech Republic
International Markets
2
26
Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer deposits increasedy-o-y in most of our core countries
Higher net interest income and lower net interestmargin
Slightly higher net fee and commission income
Lower net gains from financial instruments at fairvalue and lower net other income
Excellent result of non-life insurance and excellentsales of life insurance y-o-y
Strict cost management
Sharply lower net impairments on loans
Solid solvency and liquidityComparisons against the previous quarter unless otherwise stated
3Q 2020 key takeaways
Excellent net result of 697m EUR in 3Q20
ROE 7 (15 in 3Q20) Cost-income ratio 59 (adjusted for specific items)
Combined ratio 83 Credit cost ratio 061 (017 without
collective Covid-19 impairments) Common equity ratio 166 (B3 DC fully loaded)
Leverage ratio 59 (fully loaded)
NSFR 146 amp LCR 142
9M203Q20 financial performance
Net result
when evenly spreading the bank tax throughout the year 784m EUR collective Covid-19 impairments in 9M20 of which 637m EUR management overlay and 147m EUR impairments captured by the ECL models through the updated IFRS 9 macroeconomic variables
430
745612
702
-5
210
697
1Q19 2Q19 3Q19 2Q201Q204Q19 3Q20
27
Net result at KBC Group
Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-companygroup items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT
430
745
612702
-5
210
697
1Q201Q19 3Q192Q19 3Q204Q19 2Q20
NET RESULT AT KBC GROUP334
618
514586
-11
42
546
2Q201Q19 3Q203Q192Q19 1Q204Q19
68 83 79 7936
85 73
3361 66
94119 134
-20 -46 -30 -31 -50
157
-4
1Q19 2Q19 4Q193Q19
-13-20
1Q20
173
2Q20 3Q20
96
124 99143
3
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT
Amounts in m EUR
Non-Life result
Life result
Non-technical amp taxes
28
Higher net interest income and lower net interest margin
Net interest income (1122m EUR)bull Increased by 4 q-o-q and decreased by 4 y-o-ybull The q-o-q increase was driven primarily by
o the positive impact of TLTRO3 (+26m EUR q-o-q)o a positive one-off item (+26m EUR NII insurance)o higher margin on new production mortgages than the margin on the
outstanding portfolio in Belgium the Czech Republic and Slovakiao higher netted positive impact of ALM FX swapspartly offset byo the further negative impact of the CNB rate cuts (as the last CNB rate cut
from 100 to 025 happened early May 2020)o lower reinvestment yields
bull The y-o-y decrease was mainly the result of the CNB rate cuts thedepreciation of the CZK amp HUF and the negative impact of lowerreinvestment yields
Net interest margin (181)bull Decreased by 1 bp q-o-q and by 13 bps y-o-y due mainly to the CNB
rate cuts the negative impact of lower reinvestment yields and anincrease of the interest-bearing assets (denominator)
NIM
NII
992 971 977
117 114 15
2Q20
118 111124 1
114
1006
1195
2Q19
14
-1
1182
10661044
1
3Q19
112212
1057
4Q19
17
1Q19
1129
1Q20
166106
-1
131
3Q20
1132 11741083
3Q191Q19
181
2Q19 2Q204Q19 1Q20
194198
3Q20
194 194 197
182
Amounts in m EUR
NII - netted positive impact of ALM FX swapsNII - Holding-companygroup
NII - InsuranceNII - Banking
From all ALM FX swap desks NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps amp repos
Non-annualised Loans to customers excluding reverse repos (and bonds) Growth figures are excluding FX consolidation adjustments reclassifications and collective Covid-19 ECL Customer deposits including debt certificates but excluding repos Customer deposit volumes excluding debt certificates amp repos +1 q-o-q and +9 y-o-y
ORGANIC VOLUME TREND Total loans ow retail mortgages Customer deposits AuM Life reserves
Volume 158bn 69bn 212bn 204bn 27bn
Growth q-o-q +1 +2 +1 +1 0
Growth y-o-y +4 +6 +4 -4 -3
29
Slightly higher net fee and commission income
Amounts in bn EUR
AuM
210 210 212 216
193202 204
4Q191Q19 3Q202Q203Q192Q19 1Q20
264 270 275 279 270 237 245
219 230 237 243 229219 218
-73 -65 -68 -77 -71 -68 -73
3Q201Q19
410
2Q19 3Q19 4Q19 2Q201Q20
435 444 445 429388 390
Distribution Banking services Asset management services
Amounts in m EUR Net fee and commission income (390m EUR)bull Up by 1 q-o-q and down by 12 y-o-ybull Q-o-q increase was the result of the following
o Net FampC income from Asset Management Services increased by4 q-o-q as a result of higher management fees partly offset bylower entry fees from unit-linked life insurance products
o Net FampC income from banking services roughly stabilised q-o-qas higher fees from payment services and higher networkincome was offset by lower securities-related fees (after twoexceptionally strong quarters)
o Distribution costs rose by 8 q-o-q due chiefly to highercommissions paid linked to increased non-life insurance sales
bull Y-o-y decrease was mainly the result of the followingo Net FampC income from Asset Management Services fell by 11
y-o-y as a result of lower management fees and entry feeso Net FampC income from banking services decreased by 8 y-o-y
(-6 y-o-y excluding FX effect) driven mainly by lower fees frompayment services (partly due to less transaction volumes as aresult of Covid-19 partly due to the SEPA regulation) and lowerfees from credit files amp bank guarantees partly offset by highersecurities-related fees
o Distribution costs rose by 7 y-o-y due chiefly to highercommissions paid linked to banking products and increasednon-life insurance sales
Assets under management (204bn EUR)bull Increased by 1 q-o-q due mainly to a positive price effect (+1)
next to limited net inflows in mutual fund businessbull Decreased by 4 y-o-y due mainly to a negative price
effect
FampC
30
Insurance premium income (gross earned premiums) at 715m EURbull Non-life premium income (448m EUR) increased by
2 y-o-ybull Life premium income (267m EUR) down by 3 q-o-q
and by 8 y-o-y
The non-life combined ratio for 9M20amounted to an excellent 83 This is theresult of 4 y-o-y premium growth combinedwith 13 y-o-y lower technical charges in9M20 The latter was due mainly to lowernormal claims in 9M20 (especially in Motordue to Covid-19) and a negative one-off in9M19 (-16m due to reassessment on claimsprovisions) However note that 9M20 wasimpacted by a higher negative cededreinsurance result compared with 9M19
Non-life premium income up y-o-y and excellent combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUMS)
9093 92
1Q 1H 9M
83
FY
9283
90
2019 2020
415 425 440 441 443 435 448
351 317 291 364 297 276 267
805740
1Q19 2Q19 3Q19 4Q19 3Q201Q20 2Q20
766 742 731 712 715
Life premium income Non-Life premium income
Amounts in m EUR
31
Non-life and life sales up y-o-y
Sales of non-life insurance productsbull Up by only 1 y-o-y due to negative impact of Covid-19
on renewals of existing business (mainly lsquoWorkmenrsquoscompensationrsquo and lsquoGeneral third-party liabilityrsquo)
Sales of life insurance productsbull Decreased by 25 q-o-q but increased by 4 y-o-ybull The q-o-q decrease was driven by both lower sales of
unit-linked products and guaranteed interest products inBelgium
bull The y-o-y increase was driven entirely by higher sales ofunit-linked products in Belgium (due to a shift frommutual funds to unit-linked products by Private Bankingclients) only partly offset by lower sales of guaranteedinterest products (due mainly to the suspension ofuniversal single life insurance products in Belgium)
bull Sales of unit-linked products accounted for 49 of totallife insurance sales in 3Q20
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
214 198 161 160 177327
205
302 261242 311 249
235
214
4Q19 2Q201Q19 3Q202Q19 3Q19 1Q20
516459
403471
427
561
420
Guaranteed interest products Unit-linked products
534
412 411 400
567
415 416
1Q204Q192Q191Q19 2Q203Q19 3Q20
Amounts in m EUR
32
Lower FIFV and net other income
The q-o-q decline in net gains from financialinstruments at fair value was attributable mainlyto the exceptional rebound in 2Q20bull a negative change in market credit and funding value
adjustments although still a positive number (mainly asa result of changes in the underlying market value of thederivatives portfolio due to decreasing counterpartycredit spreads amp KBC funding spread partly offset bylower long-term interest rates)o FVA 24m EUR (-49m EUR q-o-q)o CVA 30m EUR (+3m EUR q-o-q)o MVA 2m EUR (+1m EUR q-o-q)
bull lower dealing room income after an excellent 2Q20result
bull a lower net result on equity instruments (insurance)
Net other income amounted to 37m EUR belowthe normal run rate of around 50m EUR perquarter due to among other things an additionalimpact of the tracker mortgage review in Ireland of-6m EUR (of which -4m related to the trackermortgage fine)
FIFV
Amounts in m EUR
-186
10062 48
-59
126
-82
-2
1Q19
-3
8
-8
4Q19
-2219
-37 -25-1
130
17
85
3Q203Q19
44
29 1028-58
1Q20
-3
2Q20
11 3155
2Q19
13
19
-2-46
-385
253
99
59
133
43 47 50 5337
4Q191Q19 2Q19 3Q19 3Q202Q201Q20
NET OTHER INCOME
Dealing room amp other incomeMVACVAFVA Net result on equity instruments (overlay insurance)
M2M ALM derivatives
33
Strict cost management
Operating expenses excluding bank taxesdecreased by 37 y-o-y in 9M20 roughly in linewith our FY20 guidance of -35 y-o-y due chieflyto the announced cost savings related to Covid-19
Operating expenses excluding bank taxesincreased by 3 q-o-q primarily as a result of
o higher staff expenses (largely due to reducedaccrued variable remuneration in 2Q20 and wageinflation in most countries despite less FTEs)
o seasonally higher marketing costs higher facilitiesand depreciation amp amortisation costs
partly offset byo seasonally lower ICT costs and professional fees
Costincome ratio (banking) adjusted for specificitems at 58 in 3Q20 and 59 YTD (58 inFY19) Costincome ratio (banking) 52 in 3Q20and 61 YTD both distorted by bank taxes andthe latter by lower FIFV
Total bank taxes (including ESRF contribution) areexpected to increase by 3 y-o-y to 504m EUR inFY20
OPERATING EXPENSES
913 957 947 994 931 877 905
382 407
1338
3Q19
2130
1Q19 2Q19 4Q19
28 51
1Q20
27
2Q20
904
3Q20
1296
988 975 1045926
Bank tax Operating expenses
See glossary (slide 87) for the exact definitionAmounts in m EUR
TOTAL Upfront Spread out over the year
3Q20 1Q20 2Q20 3Q20 1Q20 2Q20 3Q20 4Q20e
BE BU 0 289 2 0 0 0 0 0
CZ BU 0 40 0 0 0 0 0 0
Hungary 20 25 1 0 20 18 20 24
Slovakia 0 3 0 0 8 8 0 0
Bulgaria 0 17 -1 0 0 0 0 0
Ireland 1 4 -1 0 1 1 1 26
GC 0 0 0 0 0 0 0 0
TOTAL 21 377 0 0 29 27 21 50
EXPECTED BANK TAX SPREAD IN 2020
Amounts in m EUR
34
Sharply lower asset impairments
Sharply lower asset impairments q-o-qbull The q-o-q decrease of loan loss provisions was attributable
mainly too 746m EUR collective Covid-19 impairments booked in 2Q20
of which 5m was reversed in 3Q20 (small impact fromupdated IFRS 9 macroeconomic variables and managementoverlay)
o lower loan loss impairments in Belgium and the CzechRepublic (2Q20 was impacted by several corporate files inboth countries)
bull Impairment of 11m EUR on lsquootherrsquo due to several small items(of which 4m EUR ndash the largest amount ndash as the result of animpairment on a lease contract related to a HQ building inHungary)
The credit cost ratio in 9M20 amounted tobull 17 bps (12 bps in FY19) without collective Covid-19 ECLbull 61 bps with collective Covid-19 ECL
The impaired loans ratio improved to 32 18 ofwhich over 90 days past due
ASSET IMPAIRMENT
67 75 78 9957
4369
26
3Q19
41
1Q19 3Q20
36
2Q19
63
1
1Q20
25
7
20
4Q19
12
141 746
2Q20
11
-5
40
82
857
IMPAIRED LOANS RATIO
32
19
4Q19
2124
1Q19 3Q192Q19
20 19
1Q20
37
19
2Q20
18
3Q20
43
35 35 3433
CREDIT COST RATIO
FY18FY14 FY15 FY19 9M20FY16
017
023
FY17
042
009
-006 -004
012
061
of which over 90 days past dueImpaired loans ratio
Other impairments
Collective Covid-19 ECL
Impairments on financial assets at AC and FVOCI
Amounts in m EUR
CCR with collective Covid-19 ECL CCR without collective Covid-19 ECL
35
Loan loss experience at KBC
9M20CREDIT COST
RATIO
FY19CREDIT COST
RATIO
FY18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
AVERAGE lsquo99 ndashrsquo19
Belgium 059 022 009 009 012 na
Czech Republic 064 004 003 002 011 na
International Markets 079 -007 -046 -074 -016 na
Group Centre -027 -088 -083 040 067 na
Total 061 012 -004 -006 009 042
Credit cost ratio amount of losses incurred on troubled loans as a of total average outstanding loan portfolio
36
Impaired loans ratios of which over 90 days past due
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
21
1Q19 2Q19
20
4Q19 3Q20
1819
2Q201Q20
19
43
19
3Q19
37 35 35 33 34 32
24
Impaired loans ratioOf which over 90 days past due
2Q19 3Q19
11
1Q20
12
2Q20
11
3Q20
13
1Q19 4Q19
23
131415
24 2523 22 22 21
49
1Q20
48 45
3Q19
85
5176
4Q191Q19 2Q20
58
2Q19
91
53
118
98
82 78 72
3Q20
BELGIUM BU
11
2222
12
2Q20
12
3Q20
11
1Q20
24
12
1Q19 3Q19
11
26
2Q19
11
4Q19
23 23 24
KBC GROUP
37
Cover ratios
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
453
3Q191Q19
422
2Q19 2Q204Q19 1Q20 3Q20
656599
420
604 603
420 434
604
448
624
452
617
Impaired loans cover ratio
Cover ratio for loans with over 90 days past due
1Q20 3Q20
472
2Q20
660
2Q191Q19
690
3Q19 4Q19
474 475
639
481
655 655
472
669
472 492
661
421 449
1Q19 2Q19 1Q203Q19 2Q204Q19 3Q20
644
430
625
423454
642
417
634 626659
464
654
4Q191Q19 3Q201Q20 2Q202Q19 3Q19
430
607
327 352
481
321
464
327
470
324
470 487
340
465
38
NET PROFIT ndash BELGIUM NET PROFIT ndash CZECH REPUBLIC
993 932605
439335
361412
1575
2016
1432
2019
1240
2017
1450
1089
2018 2020
1344
9M20 ROAC 12
Amounts in m EUR
465 534 484584 281
131168 170
205
2018
702
2016
596
2017 2019 2020
654
789
9M20 ROAC 22NET PROFIT ndash INTERNATIONAL MARKETS
289370 440
260 113
13974
93
119
20192016
533
2017 2018
444
2020
428379
9M20 ROAC 7
Overview of contribution of business units to 9M20 result
4Q 9M 4Q 9M 4Q 9M
NET PROFIT ndash KBC GROUP
902
685462 621 702
2016
1742 19482113
2017
1787
2018 2019 2020
2427 2575 2570 2489
9M20 ROAC 11
4Q 9M
39
Balance sheet KBC Group consolidated at the end of September 2020
76
67
158
146
Total assets (EUR 321bn)
Other (incl interbank loans reverse repos property amp equipment etc)
Insurance investment contracts
Loan book (loans and advances to customers)
Investment portfolio (equity and debt securties)
Trading assets
51
2621
185
12197
Total liabilities and equity (EUR 321bn)
Deposits from customers
Technical provisions before reinsurance NL and L
Other (incl interbank deposits)
Equity (including AT1)
Other MREL instruments and debt certificates
Liabilities under insurance investment contracts
Trading liabilities
Credit quality Capital adequacy ampliquidity position
40
Y-O-Y ORGANIC VOLUME GROWTH
4
BE
Volume growth excluding FX effects divestmentsacquisitions and collective Covid-19 ECL Loans to customers excluding reverse repos (and bonds) Customer deposits including debt certificates but excluding repos Total customer loans in Bulgaria new bank portfolio +16 y-o-y while legacy -28 y-o-y
Loans DepositsRetail mortgages
35
2
8
Loans Retail mortgages
6
Deposits
2
Retail mortgages
Loans Deposits
121214
DepositsLoans Retail mortgages
6
1011
DepositsLoans
22
Retail mortgages
17
8
DepositsLoans Retail mortgages
22
-5
6
4
Loans Retail mortgages
Deposits
4
Balance sheetLoans and deposits continue to grow in all countries
CR
41
Sectorial breakdown of outstanding loan portfolio (1)(179bn EUR) of KBC Bank Consolidated
11
7
14
6
8443
3
42
Services
Automotive
Distribution
Rest
Building amp construction
Real estate
Finance amp insurance
AuthoritiesAgriculture farming fishing
Private Persons
Chemicals
16
17
45
Other sectors
Electricity
Food producers
14
14
Metals
10Machinery amp heavy equipment
07
Shipping 07
Hotels bars amp restaurants
05
Oil gas amp other fuels
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
42
Geographical breakdown of the outstanding loan portfolio (2)(179bn EUR) of KBC Bank Consolidated
541
Belgium
Ireland
163
2132
Other CEE
Czech Rep
Slovakia
58
50
Hungary
Bulgaria87
Other W-Eur 0315
North America
14
Asia
16Rest
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
43
Government bond portfolio ndash Notional value
Notional investment of 497bn EUR in government bonds (excl trading book) at end of 9M20 primarily as aresult of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-incomeinstruments
Notional value of GIIPS exposure amounted to 55bn EUR at the end of 9M20
27
18
67
12
9
4
Bulgaria3
Belgium
Czech Rep
Slovakia3
PolandHungary
3Italy
France
Other
SpainGermany
Austria Netherlands
IrelandPortugal
END OF 9M20(Notional value of 497bn EUR)
() 1 () 2
29
14
366
4
13
10
5
France
Belgium
Poland
Czech Rep
Spain
Italy
Hungary
3
SlovakiaBulgaria
Other
Germany Austria
Netherlands IrelandPortugal
END OF FY19(Notional value of 461bn EUR)
() 1 () 2
44
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
45
No IFRS interim profit recognition given the more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share The impact of transitional was limited to 2 bps at the end of 9M20 as there was no profit reservation At year-end2020 the impact of the application of the transitional measures is expected to result in a positive impact on CET1 of56 bps compared to fully loaded
Strong capital position (1)Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
1045 OCR
FY19
163
9M191H19
166
1Q19 1Q20 1H20
166157
9M20
156 154
171
The fully loaded common equity ratiostabilised q-o-q at 166 at the end of 9M20based on the Danish Compromise despite1bn EUR RWA add-ons for anticipated PDmigrations
KBCrsquos CET1 ratio of 166 at the end of9M20 represents a solid capital bufferbull 86 capital buffer compared with the current
theoretical minimum capital requirement of795 (as a result of the announced ECB andNational Bank measures which providedsignificant temporary relief on the minimumcapital requirements)
bull 61 capital buffer compared with the OverallCapital Requirement (OCR) of 1045 (which stillincludes the 250 capital conservation buffer ontop of the 795)
bull 59 capital buffer compared with theMaximum Distributable Amount (MDA) of1069 (given small shortfall in AT1 and T2bucket)
The difference between fully loaded CET1ratio and the IFRS9 transitional CET1 ratioonly amounted to 2 bps in 3Q20
795 theoretical regulatory minimum
1069 MDA
Total distributable items (under Belgian GAAP) KBC Group 106bn EUR at 9M 2020 of whichbull available reserves 949mbull accumulated profits 8 192m
46
Strong capital position (2)
Fully loaded Basel 3 total capital ratio (Danish Compromise)
157 CET1
18921 T2
16 AT1
1Q19 1H19
21 T2
156 CET1 166 CET1
16 AT1 15 AT1
1Q209M19
154 CET 1
19 T2
15 AT1
206
20 T2
171 CET1
FY19
19 T2192
15 AT1
163 CET1
18 T2
15 AT115 AT1
1H20
18 T2
9M20
193 197 198 198
166 CET1
The fully loaded total capital ratiostabilised q-o-q at 198 at the end of9M20
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
47
Fully loaded Basel 3 leverage ratio and Solvency II ratio
55
1Q19 1H19 9M19 FY19 1Q20
52
1H20 9M20
51 50 52 48 48
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
1H191Q19
65
9M19 FY19
60
9M201H201Q20
61 6068
60 59
Solvency II ratio
1H20 9M20
Solvency II ratio 198 196
The q-o-q delta in the Solvency II ratio was mainlydriven by a lower compensating effect of the volatilityadjustment
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over
2019 profit of 25 EUR per share
No IFRS interim profit recognition given more stringent ECB approach Taking into account the adjustment of the final dividend over 2019
48
Strong customer funding base with liquidity ratiosremaining very strong
KBC Bank continues to have a strong retailmid-cap deposit base in its core markets ndash resulting in a stable funding mix with a significant portion of the fundingattracted from core customer segments and markets
KBC Bank participated to the TLTRO III transaction for an amount of 195bn EUR in June (bringing the total TLTRO exposure to 219bn EUR) which significantlyincreased its funding mix proportion and is reflected in the lsquoInterbank Fundingrsquo item below
69 customer
driven
Net Stable Funding Ratio (NSFR) is based on KBC Bankrsquos interpretation of the proposal of CRR amendment Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements From EOY2017 onwards KBCBank discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure
Ratios FY19 9M20 Regulatory requirement
NSFR 136 146 ge100
LCR 138 142 ge100
NSFR is at 146 and LCR is at 142 by the end of 9M20bull Both ratios were well above the regulatory requirement of 100 due
to a strong growth in customer funding and the participation toTLTRO III
9
6969
9
73
2
63
8
719
10
2
71
FY13
18
13
93
FY18
7
FY14
18
68
86
7
11
3
71
FY15
10
FY19
48
FY16
8
62
48
9
63
1
FY17
8 8
72
7
82
9M20
Interbank FundingSecured Funding
Total Equity
Debt issues placed at institutional relationsCertificates of depositFunding from Customers
Government and PSE
Mid-cap
Retail and SME
5
19
76
133 766 139 560 143 690 155 774 163 824 176 045 189 453
FY14 FY15 FY16 FY17 FY18 FY19 3Q20
Funding from customers (m EUR) of KBC Banking Group
49
Upcoming mid-term funding maturities
In December 2019 KBC Bank NV decided to early repay theremaining part of the TLTRO II (ie 2545bn EUR) and entered intothe TLTRO III for 25bn EUR
In May 2020 KBC Bank issued a covered bond for an amount of1bn EUR with a 55-year maturity
In June 2020 KBC Group issued its second Green seniorbenchmark for an amount of 500m EUR with a 7-year maturitywith call date after 6 years
In June 2020 KBC Bank participated in TLTRO III for an amount of195bn EUR which brings the total TLTRO exposure to 219bn EURmaturing in 2023
In September 2020 KBC Group issued a senior benchmark for anamount of 750m EUR with a 6-year maturity with call date after 5years
KBC Bank has 6 solid sources of long-term fundingbull Retail term depositsbull Retail EMTNbull Public benchmark transactionsbull Covered bondsbull Structured notes and covered bonds using the private
placement formatbull Senior unsecured T1 and T2 capital instruments issued at KBC
Group level and down-streamed to KBC Bank
38
2816
36
01
06
16
09 0908
0503 03
0
1000
2000
3000
4000
5000
6000
7000
2020 2021 2022 2023 2024 2025 2026 2027 gt= 2028
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond
Total outstanding = 19bn EUR
(Including of KBC Grouprsquos balance sheet)
50
KBC has strong buffers cushioning Sr debt at all levels (9M 2020)
KBC GroupSenior6 518
Tier 2 2 179
Additional Tier 11 500
CET1 (transitional)16 606
KBC Bank
Tier 2 1 680
Additional Tier 11 500
CET1 (transitional)12 872
176
KBC Insurance
Tier 2 500
Parent shareholders equity3 578
Buffer for Sr level 226bn EUR
Buffer for Sr level 203 bn EUR
Legacy T2 issued by KBC Bank will disappear over time
nominal amounts in million EUR
Subordinated on loan by KBC Group6 518
51
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at KBC Group level with bail-in as thepreferred resolution tool
SRBrsquos currently applicable approach to MREL is defined in the lsquo2018 SRB Policy for the 2nd wave of resolution plansrsquopublished on 16 January 2019 which is based on the current legal framework (BRRD 1)
The actual binding target is 967 as of TLOF as from 31-12-2021
TLOF Total Liabilities and Own FundsLAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR Combined Buffer Requirement = Conservation Buffer (25) + O-SII buffer (15) + countercyclical buffer (015 in previous target 035 in revised target)
KBC complies with resolution requirementsMREL target applicable as from 31-12-2021
LAA
RCA
MCC
8 P1
175 P2R
435 CBR
8 P1
175 P2R
31 (CBR ndash 125)
100 RWA
95 RWA
= 263as of RWA
MREL target = 967 as of TLOF
x RWATLOF balance
31122017=
967 as of TLOF
Actual in of TLOF
23
59
06
94
05
3Q20
HoldCo senior
T2 part of own fundsAT1
CET1
52
Available MREL as a of TLOF
1Q201Q19 1H19 9M19 FY19
93104
9M201H20
96 98 10093 94
Available MREL () as a of TLOF
Hybrid approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share As of 1H20 MREL ratio includes the impact of IFRS9 transitional measures
The decrease of MREL as a of TLOF asof 1H20 can be fully explained by theparticipation in TLTRO III for an amountof 195bn EUR in June 2020 Excludingthis MREL would have amounted to101 at the end of 9M20
53
Latest credit ratings
SampPMoodyrsquos Fitch
Gro
upBa
nkIn
sura
nce
Senior UnsecuredTier IIAdditional Tier IShort-term P-2 A-2 F1Outlook Stable Negative Negative
Baa1 A- A- BBB BBB+
Ba1 BB+ BBB-
Senior Unsecured
Short-term P-1 A-1 F1Outlook Stable Stable Negative
A1 A+ A+Tier II
Covered Bonds Aaa - AAA
-
Financial Strength RatingIssuer Credit Rating
- A -- A -
BBB
Outlook - Negative -
-
Latest updates triggered by the COVID-19 pandemicbull 23 Apr 2020 SampP revised KBC Group and KBC Insurance outlook to negative The outlook for KBC Bank remains Stable because of the
substantial buffers of already existing bail-in-able debtbull 30 Mar 2020 Fitch revised KBC Group and KBC Bank outlook to negative Next to that driven by methodology changes Fitch
downgraded Tier 2 debt by one notch to lsquoBBB+ and upgraded AT1 debt by one notch to lsquoBBB-rsquo
54
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
55
COVID-19 (19)
Latest status of government amp sector measures in each of our core countries
Opt-in 3 months for consumer finance 6-9months for mortgages and non-retail loans(until 31 Oct 2020 and can be extended to 31Dec 2020)bull For private persons deferral of principal
and interest payments while only deferralof principal payments for non-retail clients
bull Interest is accrued over the deferralperiod apart from families with netincome of less than 1700 EUR For thelatter group this results in a modificationloss for the bank (-11m EUR booked in 2Q)
Belgium
Defe
rral
of p
aym
ents
Guar
ante
e Sc
hem
e amp
liq
uidi
ty a
ssist
ance
HungaryOpt-in 3 or 6 monthsApplication period finished on 30 Sep 2020 howeverend of Oct 2020 all deferrals expiredbull Applicable for retail and non-retail clientsbull For private persons and entrepreneurs deferral of
principal and interest payments while onlydeferral of principal payments for non-retail clients
bull Interest is accrued over the deferral period butmust be paid in the final instalment resulting in amodification loss for the bank (-5m EUR booked in2Q)
bull For consumer loans the interest during thedeferral period may not exceed the 2-week reporate + 8
Czech Republic
Opt-out a blanket moratorium originally until 31 Dec 2020 Extension of the deferral until 30 JUN 2021 but with certain eligibility criteria (no detailed legislation available yet for non-retail clients)bull Applicable for retail and non-retail clientsbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period
but unpaid interest cannot be capitalisedand must be collected on a linear basisduring the remaining (extended) lifetimeThis results in a modification loss for thebank (-18m EUR booked in 1Q revised to -11mEUR in 2Q based on the actual opt-out ratio)
bull A state guarantee scheme of up to 40bn EURto cover losses incurred on future non-retailloans granted before 31 Dec 2020 to viablecompanies with a tenor of maximum 12months and a maximum interest rate of125 Guarantee covers 50 of losses above3 of total credit losses and 80 above 5of losses
bull As of 3Q a revised state guarantee schemeof up to 10bn EUR has been offered to coverlosses on future SME loans granted before 31Dec 2020 with a tenor between 1 and 3years and with a maximum interest rate of2 Guarantee covers 80 of all losses
bull The Czech-Moravian Guarantee and DevelopmentBank (CZMRB) launched several guaranteeprograms (COVID II COVID II Praha COVID III) forworking capital loans provided by commercial banksto non-retail clients The loan amount isguaranteed up to 80 or 90 of the loan amountInterest on these loans is subsidised up to 25(COVID II)
bull The Export Guarantee and Insurance Corporation(EGAP) under its COVID Plus program offersguarantees on loans provided by commercial banksEGAP guarantees 70 to 80 of the loan amountdepending on the rating of the debtor The programis aimed at companies in which exports accountedfor more than 20 of turnover in 2019
bull A guarantee scheme is provided byGarantiqa and the Hungarian DevelopmentBank These state guarantees can cover upto 90 of the loans with a maximum tenorof 6 years
bull Funding for growth scheme (launched byMNB) a framework amount of 42bn EURfor SMEs that can receive loans with a 20-year tenor and a maximum interest rate of25
bull Annual interest rate on personal loansgranted by commercial banks may notexceed the central bank base rate by morethan 5pp (until 31 Dec 2020)
56
Opt-in 9 months or 6 months (for leases)Application period is still running (but most will end in 1Q 2021)bull Applicable for retail customers SMEs and
entrepreneursbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but
the customer has the option of paying allinterest at once after the moratorium or payingit on a linear basis The latter option wouldresult in an immaterial modification loss for thebank
Slovakia
Defe
rral
of p
aym
ents
Gua
rant
ee S
chem
e amp
liq
uidi
ty a
ssist
ance
IrelandBulgaria Opt-in 3 to 6 months Application period expired on 30 Sep 2020bull Applicable for mortgage loans consumer
finance loans and business banking loanswith a repayment schedule
bull Deferral of principal and interest paymentsfor up to 6 months (with review after 3months) for mortgages amp consumer financeand 3 months for business banking
bull Option for customers to extend their loanterm by up to 6 months to match thepayment holiday
bull Interest is accrued over the deferral period
bull Anti-Corona Guarantee program offered by theSlovak Investment Holding (SIH) and aimed atSMEs consists of two components (i) an 80state guarantee with a 50 portfolio cap and (ii)the interest rate subsidy of up to 4 pa
bull In addition financial aid in the form of the Stateguarantee schemes with guaranteed fee subsidycan be provided by the (i) Slovak InvestmentHolding (guarantee of up to 90 for loans lt 2mEUR) and the (ii) Export-Import Bank of SR(guarantee of up to 80 for loans of 2-20m EUR)No portfolio cap is applied
COVID-19 (29)
Latest status of government amp sector measures in each of our core countries
bull 04bn EUR of state guaranteesprovided by the BulgarianDevelopment Bank to commercialbanks Of this amount 01bn EUR isused to guarantee 100 of consumerloans while 03bn EUR is planned to beused to guarantee 80 of non-retailloans
bull The Irish authorities put substantial reliefmeasures in place amongst other measuresvia the SBCI KBC Bank Ireland is mainlyfocused on individual customers thereforethe relief programs for business customersare less relevant
Opt-in 6 months (until 31 Mar 2021 at the latest)Application period expired on 30 Sep 2020bull Applicable for retail and non-retail
customersbull Deferral of principal with or without
deferral of interest paymentsbull In the case of principal deferral only the
tenor is extended by 6 monthsbull Interest is accrued over the deferral
period and is payable in 12 months(consumer and non-retail) or 60 months(mortgages) in equal instalments
57
COVID-19 (39)
Overview of EBA compliant payment holidays and public Covid-19 guarantee schemes
Payment holidays ndash by country
Hungary opt-out a blanket moratorium applicable for retail and non-retail loans bull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but unpaid interest cannot be capitalised
and must be collected on a linear basis during the remaining (extended) lifetime
Payment holidays excl Hungary ndash by segment
By the end of September 2020bull The volume of granted loans with payment holidays according to the EBA definitions amounted
to 137bn EUR or 9 of total loan book
bull Approx 1bn EUR of moratoria already expired of which 97 have resumed paymentsbull Government guaranteed loans granted (under Covid-19 scheme) for 583m EUR
Loans and advances under public Covid-19 guarantee schemes
Payment holidays ndash by segment
bull Loans to customers excluding reverse repos (and bonds)
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichBelgium 77 25 7Czech Republic 21 22 7Hungary (opt-out) 17 128 37Slovakia 08 12 10Bulgaria 02 5 7Ireland 12 6 12
Status 30 Sep 2020 Loans grantedEUR m
obligorsk
KBC Group 583 7of whichSME 261Corporate 309
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichMortgages 45 7SME 43 13Corporate 42 10
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group (excl HU) 120 70 8of which
Mortgages 40 6SME 36 11Corporate 39 9
58
COVID-19 (49)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
OPTIMISTIC SCENARIO BASE-CASE SCENARIO PESSIMISTICSCENARIO
Virus spread and impact sufficiently under control thanks to continued social distancing and other precautionary measures avoiding the need for another lockdown period
Virus spread and impact sufficiently under control thanks to continued and possibly intensified social distancing and other precautionary measures avoiding the need for another full lockdown period
Virus reappears and continues to weigh on society and economy necessitating on-off lockdown periods that have a significant impact on economic activity
Steep and steady recovery from 3Q20 onwards with a fast return to pre-Covid-19 levels of activity
More moderate but still steady recovery from 3Q20 onwards with a recovery to pre-Covid-19 levels of activity by the end of 2023
Another (series of) shock(s) takes place leading to an interrupted and unsteady path to recovery
Sharp short V-pattern U-pattern More L-like pattern with right leg only slowly increasing
The Covid-19 pandemic continues to be the maindriver of the global economy The epidemiologicaldevelopments are far from good The number ofnew Covid-19 cases are rapidly increasing in manycountries Because of this uncertainty we continueworking with three alternative scenarios a base-case scenario a more optimistic scenario and amore pessimistic scenario
bull The definition of each scenario reflects the latestvirus-related and economic developments while wecontinue to assign the same probabilities as inprevious quarter 45 for the base-case 40 for thepessimistic and 15 for the optimistic scenario
bull The macroeconomic information is based on the economic situation in September 2020 and hence does not yet reflect the official macroeconomic figures for 3Q20 as reported by different authorities
Real GDP growth
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Euro area -67 -83 -116 87 52 -10 29 20 22 Belgium -61 -90 -111 91 51 -11 29 20 20 Czech Republic -61 -70 -85 62 47 13 28 30 33 Hungary -30 -62 -120 40 50 40 35 35 35Slovakia -65 -80 -95 66 61 16 45 35 38 Bulgaria -40 -80 -120 40 50 40 30 30 30 Ireland 00 -50 -100 50 40 10 30 35 25
2020 2021 2022 bull For the euro area we haverevised GDP growth for2020 upwards to -83and mechanically thisless negative outcome for2020 translates into adownward revision ofgrowth to 52 for 2021
59
COVID-19 (59)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
Unemployment rate
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 66 72 78 70 76 110 60 69 95Czech Republic 43 51 61 42 54 73 35 48 68 Hungary 48 61 75 42 56 75 40 48 65 Slovakia 75 90 100 80 100 120 70 80 105 Bulgaria 60 80 110 43 100 130 42 70 120 Ireland 80 110 200 60 70 160 50 60 120
2020 2021 2022
House-price index
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 15 -05 -15 10 -30 -60 25 10 -20Czech Republic 53 48 35 10 -08 -40 41 20 -08 Hungary 40 20 -75 10 -10 -50 31 20 -10 Slovakia 65 50 20 10 -10 -50 30 20 -05 Bulgaria 05 -20 -30 10 -10 10 30 30 15Ireland -20 -70 -120 40 35 0 40 35 10
2020 2021 2022
60
COVID-19 (69)
Steady staging of loan portfolio
bull As disclosed during previous quarters our Expected Credit Loss (ECL)models were not able to adequately reflect all the specificities of theCovid-19 crisis or the various government measures implemented inthe different countries to support households SMEs and Corporatesthrough this crisis Therefore an expert-based calculation at portfoliolevel is required via a management overlay
bull In the first quarter this calculation was limited to a certain number of(sub)sectors In the second quarter driven by significant uncertaintiesaround the Covid-19 crisis the scope of the management overlay wasexpanded to include all sectors of our corporate and SME portfolio aswell as our retail portfolio
bull To be consistent with the second quarter we recalculated the Covid-19ECL based on the same methodology used on the performing and non-performing portfolio by the end of September 2020 but including thelatest economic scenarios
bull Until now only minor PD shifts have been observed in our portfoliowhich is reflected in stable staging percentages Note that in line withECBESMAEBA guidance any general government measure grantedbefore the end of September 2020 has not led to automatic staging
Total loan portfolio by IFRS 9 ECL stage
Loan portfolio
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
852
FY19
113 10735
860 854
33
1Q20
854
11334
1H20
Stage 3 11432
9M20
Stage 1
Stage 2
(in billions of EUR) YE19 1Q20 1H20 9M20Portfolio outstanding 175 180 179 179 Retail 42 40 41 42 of which mortgages 38 37 38 39 of which consumer finance 3 3 3 3 SME 22 21 21 22 Corporate 37 39 38 37
61
78
99
-2
234
43
150
-3
147
596
57
637
3Q20
2Q20
1Q20
9M20
121
845
52
1 018
Management overlay
Impairments on financial assets at AC and at FVOCI without any COVID-19 impactCovid-19 impact already captured by ECL models
Impairment on financial assets at AC and at FVOCI
Amounts in m EUR
Collective Covid-19 ECL = 784m
COVID-19 (79)
Impact of the collective Covid-19 ECL after 9M
Credit Cost (annualized)
FY19 3M20 1H20 9M20
Without collective COVID-19 ECL 012 017 020 017
With collective COVID-19 ECL 027 064 061
Collective Covid-19 ECL not annualized
bull The updated assessment of the impact of Covid-19 on theperforming and non-performing portfolio after 9M20 (see detailsin following slides) resulted in a total collective Covid-19 ECL of784m EUR (q-o-q release of 5m EUR) of which
bull a total management overlay of 637m EUR with a -2mEUR release being booked in 3Q20
bull the ECL models captured an impact of 147m EUR after9M through the updated macroeconomic variables usedin the calculation resulting in a q-o-q release of -3m EUR
bull The total collective Covid-19 ECL of 784m EUR in 9M20 consistsof 6 stage 1 85 stage 2 and 9 stage 3 impairments
bull Including the collective Covid-19 ECL the Credit Cost Ratioamounted to 061 in 9M20
bull We are reiterating our estimate for FY20 impairments (onfinancial assets at AC and at FVOCI) of roughly 11bn EUR as aresult of the coronavirus pandemic Depending on a number ofevents such as the length and depth of the economic downturnthe significant number of government measures in each of ourcore countries and the unknown number of customers who willavail themselves of these mitigating measures we estimate theFY20 impairments to range between roughly 08bn EUR(optimistic scenario) and roughly 16bn EUR (pessimisticscenario)
62
COVID-19 (89)
Collective Covid-19 ECL in more detail no major change in the classification of sector risk
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
SME amp Corporate loan portfolio of 104bn EUR broken down by sector sensitivity to Covid-19
36
23
41
Medium
Low
High
10
47
35
29
33
1219
12Building amp construction
33
9M20
Commercial real-estate
Distribution(retail amp wholesale)
Automotive
Services(entertainement leisure amp retirement homes)
MetalsShipping (transportation)Hotels bars amp restaurants
Sum of other sectors lt 1 (incl Aviation sector) No major change in the sector split between high-medium-low risk compared to the previous quarterOnly minor reallocations of underlying activities fromlsquohighrsquo to lsquomediumrsquo or even to lsquolowrsquo risk Also very limitedshifts from lsquomediumrsquo to lsquohighrsquo risk situated mainly in thefollowing sectors
Distribution A minor share of activities related to the wholesale distribution of apparel was moved into the lsquohigh riskrsquo category adding to the already designated retail part (mainly retail fashion)
Services Increase in lsquohigh riskrsquo category driven by retirement homes mainly in Belgium
Metals The activity related to the manufacture of metal structures linked to the construction of non-residential buildings was shifted into the lsquohigh riskrsquo category
Building amp construction
In the previous quarter the entire portfolio was allocated to lsquomedium riskrsquo dueto the limited lockdown interruption as this was one of the first sectors torestart In addition the temporary unemployment cover provided by the Belgiangovernment tempered the impact Now in the third quarter a limited share ofactivities related to the construction of non- residential buildings was shifted intothe lsquohigh riskrsquo category
Aviation sectorAs in the second quarter both sectors categorised as lsquohigh riskrsquo but with a limited share of 03 both
Exploration and production of oil gas amp other fuels
Composition of lsquoother sectors lt1rsquo in more detail
63
COVID-19 (99)
Collective Covid-19 ECL in more detail q-o-q release of 5m EUR
Collective Covid-19 ECL per country
9M20Optimistic Base Pessimistic Probability
EUR m 15 45 40 weightedKBC Group 471 621 908 714 70 784 -5 746 43By country
Belgium 300 366 450 390 20 410 -3 378 35Czech Republic 95 143 198 158 9 167 9 152 6Slovakia 23 30 50 37 0 37 -3 39 1Hungary 24 38 82 54 0 54 -1 54 1Bulgaria 7 16 25 18 5 23 -5 28 naIreland 22 28 103 57 36 93 -2 95 na
2Q20 1Q203Q20Performing portfolio impact Non-
Performing portfolio
Total9M20
2
This presentation is provided for information purposes only It does not constitute an offer to sell or the solicitation to buy anysecurity issued by the KBC Group
KBC believes that this presentation is reliable although some information is condensed and therefore incomplete KBC cannot beheld liable for any loss or damage resulting from the use of the information
This presentation contains non-IFRS information and forward-looking statements with respect to the strategy earnings and capitaltrends of KBC involving numerous assumptions and uncertainties There is a risk that these statements may not be fulfilled andthat future developments differ materially Moreover KBC does not undertake any obligation to update the presentation in linewith new developments
By reading this presentation each investor is deemed to represent that it possesses sufficient expertise to understand the risksinvolved
Important information for investors
3
Market share (end 2019) BE CZ SK HU BG IRL
Loans and deposits
Investment funds
Life insurance
Non-life insurance
GDP growth KBC data Sept lsquo20 Retail segment
2010
2110 910
30 24
7 13 16
8133 3
23
49 108 8
Real GDP growth BE CZ SK HU BG IRL
of Assets
2019
2020e
2021e
4
63
203 3 2
3414 25 24
5549
-80-80-90 -70 -50-62
IRELAND
BELGIUMCZECH REP
SLOVAKIA
HUNGARY
BULGARIA
37m clients507 branches104bn EUR loans137bn EUR dep
03m clients16 branches10bn EUR loans5bn EUR dep
42m clients221 branches28bn EUR loans39bn EUR dep
06m clients117 branches8bn EUR loans7bn EUR dep
16m clients208 branches5bn EUR loans8bn EUR dep
14m clients176 branches3bn EUR loans5bn EUR depBelgium
Business Unit
CzechRepublicBusiness Unit
InternationalMarkets Business Unit
6151 5047 50 40
KBC PassportWell-defined core markets
4
KBC Group NV
KBC Bank KBC Insurance
100100
KBC IFIMA
End of April 2019 the opportunity was taken to simplify the shareholdersrsquo structure of KBC AM the shares of KBC AM held by KBC Group NV (48) shifted to KBC Bank All debt obligations of KBC IFIMA are unconditionally and irrevocably guaranteed by KBC Bank
AT 1 Tier 2 Senior
Covered bond No public issuance
MREL
KBC PassportGrouprsquos legal structure and issuer of debt instruments
Retail and Wholesale EMTN
5
Contents
Roughly 40 of KBC shares are owned by a syndicate of coreshareholders providing continuity to pursue long-term strategicgoals Committed shareholders include the CeraKBC AncoraGroup (co-operative investment company) the Belgian farmersrsquoassociation (MRBB) and a group of industrialist families
The free float is held mainly by a large variety of international institutional investors
186
27
KBC Ancora
Cera74
MRBB
115
Other core
599Free float
SHAREHOLDER STRUCTURE AT END 9M201 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
6
KBC Group in a nutshell (1)
We want to be among Europersquos best performing financial institutions By achieving this KBC wants to become the reference in bank-insurance in its core marketsbull We are a leading European financial group with a focus on providing bank-insurance products and services to
retail SME and mid-cap clients in our core countries Belgium Czech Republic Slovakia Hungary Bulgaria andIreland
Diversified and strong business performancehellip geographically
bull Mature markets (BE CZ IRL) versus developing markets (SK HU BG)bull Economies of BE amp 4 CEE-countries highly oriented towards Germany while IRL is more oriented to the UK amp USbull Robust market position in all key markets amp strong trends in loan and deposit growth
hellip and from a business point of viewbull An integrated bank-insurerbull Strongly developed amp tailored AM businessbull Strong value creator with good operational
results through the cyclebull Unique selling proposition in-depth
knowledge of local markets and profound relationships with clients
bull Integrated model creates cost synergies and resultsin a complementary amp optimised product offering
bull Broadening lsquoone-stop shoprsquo offering to our clients
Diversification Synergy
Customer Centricity
53 52
47 48
20192018
KBC Group topline diversification 2018-2019 (in )
Other income Net interest income
7
High profitability
Solid capital positionhellip
FY19
Net result
2489mEUR 14
ROE
58 90
CI ratio Combined ratio
9M20
902mEUR 759 83
CET1 generationbefore any deployment
271 bps
2018
251 bps
2019
Fully loaded Basel 3 CET1 ratio of KBC Group (Danish Compromise)
1045 Overall Capital Requirement
1Q19
157
1Q20
156
9M201H19 1H209M19 FY19
154171 163 166 166
136
NSFR
138
LCR
146 142
hellip and robust liquidity positions
FY199M20
KBC Group in a nutshell (2)
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
795 theoretical regulatory minimum
8
bull On 28 July 2020 the European Central Bank extended its recommendation not to pay dividends and not to buy backshares until January 2021 In line with the recent ECB recommendation we cannot execute our usual dividend policyAs a consequence no interim dividend will be paid out in Novrsquo20
bull KBCrsquos CET1 ratio of 166 at end 9M20 represents a solid capital bufferbull 86 capital buffer compared with the current theoretical minimum capital requirement of 795 (as a result of the announced ECB and
National Bank measures which provided significant temporary relief on the minimum capital requirements)bull 61 capital buffer compared with the Overall Capital Requirement (OCR) of 1045 (which still includes the 250 capital conservation
buffer on top of the 795)bull 59 capital buffer compared with the Maximum Distributable Amount (MDA) of 1069 (given small shortfall in AT1 and T2 bucket)
bull Any MampA opportunity will be assessed subject to very strict financial and strategic criteria
We aim to be one of the better capitalised financial institutions in Europe
bull Payout ratio policy (ie dividend + AT1 coupon) of at least 50 of consolidated profitbull Interim dividend of 1 EUR per share in November of each accounting year as an advance on the total dividendbull As we find ourselves in unprecedented circumstances and as the economic impact of the coronavirus
pandemic on the economy is still very uncertain it is too early days to make statements about the capitaldistribution to shareholders as it will also depend on different regulatory measures and the stance the ECBwill take later on this yearbeginning of next year
bull We will announce an update of our capital deployment plan together with the FY20 results
Capital distribution to shareholders (usual policy)
KBC Group in a nutshell (3)
No IFRS interim profit recognition given more stringent ECB approach
9
Personalised solutionsUsing data and AI to offer proactivelycompelling relevant and personalisedfinancial solutions
Customer experienceProviding zero-hassle no-frillscustomer experience leveraging ourunique strengths on data-securityand data-privacy
Straight-through processesThis implies re-design of processesand avoiding to digitise the currentones Aim is E2E digital processes
TrustCapitalising on the trust customersplace in us today
Broad offerEmphasising our broad financial offerand ensuring these solutions are Bigtechproof (pro-active convenient amppersonalised)
Beyond bank-insuranceStaying focused on the financial wellnessof our customers and offer services tobecome embedded in our customerrsquosdaily life
Differently the next level
KBC is the reference The winning factors
10
KBC relies on its own products for Financial Servicesie Closed product architecture
KBC relies on 3rd parties for non-financial servicesKBC acts as gate-keeper in these eco-systems
KBCrsquos products and services are top-notchof high standards simple and easy to use (zero-hassle)
Requires investments in E2E processesThese processes need to be digital first
Continuouslyimproving the customer journey bymatching identifiedcustomer needs withhigh-end personalisedproduct amp services that solve these needs
Products and services are top-notch
Differently the next level
11
your digital assistant
The interaction between the customer and Kate will be triggered by data analysis (approval
granted by customer) Kate will be trained on the basis of the customerrsquos
profile preferences and activities
PERSONALISED amp DATA DRIVEN
Kate will only propose offers where sufficient added value is shown or when she can serve the
client in an important moment in the clients live
RELEVANT amp VALUABLE OFFER
Lead journeys driven by time or location are preferably taken care of by Kate as
notifications linked to a specific location or specifying moment in time are perceived as
highly personal
AT THE RIGHT TIME
We will offer the client a frictionless End2End digital process and in doing so
make bankinsurance simple and hassle free
DIGITAL FIRST amp E2E
Kate will help the client saving time andor money focusing more on the convenience
factor Kate will also serve the client regarding security and fraud
SERVING SECURE amp FRICTIONLESS
We want all our clients to meet Kate as much as possible Kate will allow us to reach out to a
sufficient volume of clients in terms of transactions and in terms of number of
targetable audience
VOLUME
lsquoNo hassle no friction zero
delayrsquo Johan Thijs
Hyper personalised and trusted financial digital assistant
12
+
+
The strong basis remains
Differently the next level
13
Bank-insurance+
Differently the next level
14
CORPORATE FINANCE
Strategy remains focused on our 6 core countries where we continue
to look for bolt-on acquisitions
Developing a FinTech network next to partnerships FinTechs can be acquired in order to support the implementation of our strategy by addressing our current white spots
Additionally we reviewed the focus of KBC Securities and are developing an
advisory services franchise adapted to our midcap corporate banking client
base in our core countries whilst allowing a limited expansion as well in our neighboring countries leveraging
on international networks
Differently the next level
Geographical playing field
FINTECHCORE COUNTRIES
15
RetailSME vs SMEcorporate same approach ndash different speeds
SMECorporate
RetailSME
PHYGITALDIGITAL
Trusted partner for financial andlsquostrategically adjacentrsquo services
The human factor remainsparamount throughaccountmanagers with data andtechnology acting as prime levers
a strong regional advisory services franchise
Strategic adjacent services ensurea complete integrated Bank-Insurance + customer journey andoffer
Trusted partner for financial and related services (Bank-Insurance+)
Intelligent digital assistant lsquoKATErsquo that pro-actively takes the hassle to fulfill financial needs away from the client
We offer convenience bysimplifying daily activities
KBC relies on its own solutionsfor financial services For non-financial related services we rely on 3rd parties
Differently the next level
16
Top Management
Priority
Centrallysteered ndash
Group wide
Built in Culture not
bolt on
Embraceinnovation
andtechnology
Compliance Future proofand scalable
Strict client acceptance(KYC) and
transaction monitoring
(KYT) processes
bull Responsible behavior top priority of CEObull Periodic reporting to highest management
levels
bull Increased focus on monitoring and constant quality control
bull First layer of defence is network
bull Advanced data driven detectionbull Advanced monitoring tools using AI
engine (algorithmic self-learning model)bull Rule-based trend-based
bull Compliance groupwide function with clear governance structure
bull Identical building blocks in different countries
bull International cooperation supported by Expertise Board
bull Constantly improving awareness and culturebull Constantly updated rules and policiesbull Career long training and e-learning more general or
dedicated to client facing staffbull Clear guidelines with regards to atypical transactions
bull Part of the integration process in MampAbull Very limited Ndeg of non-resident clientsbull Regular updates of client information
(supported by Big Data and AI)bull Behavioural analysis + use of scenario
tools
Taking AML to the next level
Differently the next level
17
From key priorities to operational targets
KEY PRIORITIE
S
No hassle no frills zero-delay customer experience
Proactive personalizedfinancial solutions via DATA
and AI
Re-design amp automation of all processes
Bank-insurance+
Digital lead management from data driven to solution
driven
Group-wide collaboration
Maximizecustomer
experience
Go forDigital first
Furtherenhance
bank-insurance
Outperformon
operationalefficiency
DATA DRIVEN
CUSTOMER NPS RANKING
STPSCORE
BANK-INSURANCE CUSTOMERS
DIGITAL SALES
Differently the next levelTranslating strategy into non-financial targets
18
Introducing 4 new operational targets (1)
Target is to remain the reference (top-2 score on group level) Based on weighted avg of ranking in six core countries
ge85 of active customers to be BI customers ge27 of active customers to be stable BI customers
BI customers have at least 1 bank + 1 insurance product of our group Stable BI customers at least 2 bank + 2 insurance products (Belgium 3+3)
Top-2 Top-2
current target 23
Customer NPS ranking
77 85
22 27
current BI target 23 currentstable BI
target 23
bank-insurance (BI) clients
Differently the next levelTranslating strategy into non-financial targets
19
Introducing 4 new operational targets (2)
STP ge60 and STP potential ge80The STP-ratio measures how many of the services that can be offered digitally are processed without any human intervention and this from the moment of interaction by a client until the final approval by KBC
STP potential measures what the STP-ratio would be if KBC would only have the digital channel in its interaction with clients for a given process or product
Digital sales ge40 of bank sales Digital sales ge25 of insurance sales
Based on weighed avg of selected core products
2260
3880
currentSTP
target 23 currentSTP
potential
target 23
STP score(straight through processing)
3140
1425
currentbank
target 23 currentinsurance
target 23
digital sales (bank insurance)
Based on analysis of core commercial products
Differently the next levelTranslating strategy into non-financial targets
20
Our sustainability strategyThe cornerstones of our sustainability strategy and our commitment to the United Nations Sustainable Development Goals
Incr
easi
ng o
ur
posi
tive
impa
ct
We are focusing on areas in which we as a bank-insurer cancreate added value financial literacy entrepreneurshipenvironmental awareness and demographic ageing andorhealth In doing so we take into account the local context ofour different home markets Furthermore we also supportsocial projects that are closely aligned with our policy
Lim
iting
our
ad
vers
e im
pact We apply strict sustainability rules to our business activities
in respect of human rights the environment business ethicsand sensitive or controversial social themes In the light ofconstantly changing societal expectations and concerns wereview and update our sustainability policies at least everytwo years
Resp
onsi
ble
beha
viou
r Responsible behaviour is especially relevant for a bank-insurer when it comes to appropriate advice and salesTherefore we pay particular attention to training (includingtesting) and awareness For that reason responsiblebehaviour is also a theme at the KBC University our seniormanagement training programme in which the theory istaught and practised using concrete situations Seniormanagers are then tasked with disseminating it throughoutthe organisation
21
bull The Group Executive Committee reports to the BOARD OF DIRECTORSon the sustainability strategy including policy on climate change
bull The INTERNAL SUSTAINABILITY BOARD (ISB) is chaired bythe Group CEO and comprises senior managers from all business unitsand core countries the Group CFO (as chairman of Sustainable FinanceSteering Committee) and the Corporate SustainabilityGeneral Manager The ISB has group-wide decision rights on allsustainability-related issues (including our climate approach) and is themain platform for driving sustainability at group level It debates andtakes decisions on any sustainability-related matter both at a strategiclevel and in more operational terms
bull The CORPORATE SUSTAINABILITY DIVISION is headed by the CorporateSustainability General Manager and reports directly to the Group CEOThe team is responsible for developing the sustainability strategy andimplementing it across the group The team monitors and informs theExecutive Committee and the Board of Directors on progress twice ayear via the KBC Sustainability Dashboard
bull A SUSTAINABLE FINANCE PROGRAMME to focus on integrating the climate approachwithin the group It oversees and supports the business as it develops its climate-resilience in line with the TCFD recommendations and the EU Action Plan
bull The programme is overseen by a SUSTAINABLE FINANCE STEERING COMMITTEEchaired by the Group CFO Via the KBC Sustainability Dashboard progress isdiscussed regularly within the Internal Sustainability Board the Executive Committeeand the Board of Directors The latter is used to evaluate the programmersquos statusreport once a year
bull In addition to our internal organisation we have set upEXTERNAL ADVISORY BOARDS to advise KBC on variousaspects of sustainability They consist of experts from theacademic world
bull An EXTERNAL SUSTAINABILITY BOARD advises theCorporate Sustainability Division on KBC sustainabilitypolicies and strategy
bull An SRI ADVISORY BOARD acts as an independent body forthe SRI funds and oversees screening of the sociallyresponsible character of the SRI funds offered by KBCAsset Management
External Sustainability Board amp SRI Advisory Board
Country Coordinator Corporate Sustainability
Sustainable finance Program
Board of Directors
Executive Committee
Senior Representatives from Finance and Risk functions
together with Sustainability Experts
KBC Group Corporate Sustainability team
Our sustainability strategySustainability embedded in our organisation
Internal Sustainability Board
22
Our ESG ratings
Latest Score(11 Nov 2020)
CDP A- Leadership
FTSE4Good 465
ISS Oekom C Prime
MSCI AAA
Sustainalytics Low Risk 4th percentile of 385 diversified banks (Nov 42020)
SampP Global -RobecoSAM
72100
Vigeo Eiris Not publicly available
Our sustainability strategyWe substantially raise the bar for our climate-related ambitions
More than doubling of SRI funds by lsquo25 SRI funds ge 50 of new fund production by lsquo21
Target raised from 50 to 65 by lsquo30
Target raised from 90 to 100 by lsquo30 Target reduction of own emissions raised from 65 to 80 by lsquo30
KBC will achieve full climate neutrality as of the end of 2021 by offsetting the balance
7 9 12 14
30
2017 20192018 targetrsquo251H20 targetrsquo302018
57
20192017 1H20
41 4457
65
Volume of SRI Funds(In billions of EUR)
Renewable energy loans(In of total energy-sector loan portfolio)
252
8634 36 26
2016 1H202017
0
2018 2019 2021
Direct coal-related finance(In millions of EUR)
Proven track record in building down direct coal exposure
Firm commitment to exit coal supporting existing clients in their transition
Green electricity(In of own electricity consumption)
78
1H20 targetrsquo30
100
2017 2018
83
2019
74 83
Reduction own GHG emissions(In compared to 2015)
50
2019 targetrsquo30
29
2017 2018
38
80
Full Exit
23
Our sustainability strategyLatest achievements
2019 achievementsbull We signed the Collective Commitment to Climate Action an
initiative of the UNEP FI (Sep 2019)bull The entire range of KBC sustainable funds is fully compliant with the
Febelfin quality standard for sustainable investment bull KBC signed the Tobacco-Free Finance Pledge drawn up by the
international organisation Tobacco Free Portfoliosbull KBC signed the lsquoOpen letter to index providers on controversial
weapons exclusionsrsquo ndash an investor initiative coordinated by Swiss Sustainable Finance
bull We continued to build on lsquoTeam Bluersquo ndash a group-wide initiative at KBC to strengthen ties and promote cooperation among all the grouprsquos staff in the different countries in which KBC operates
Sustainable finance(KBC Group in millions of euros)
2019 2018
Green finance
Renewable energy and biofuel sector 1 768 1 235
Social finance
Health care sector 5 783 5 621
Education sector 975 943
Socially Responsible Investments
SRI funds under distribution 12 016 8 970
Total 20 542 16 769
For the latest sustainability report we refer to the KBCCOM websitehttpswwwkbccomencorporate-sustainabilityreportinghtml
2020 achievementsbull Update of the KBC energy policy and implementation of biodiversity
policybull Asset management joins the Climate Action 100+bull KBC CBC and the European Investment Bank (EIB) together make
300m EUR available to Belgian SMEs for sustainable loan (focus on climate and agriculture lending)
bull Solar panels on roof KBC building (BE)
24
bull The first results of the pilot indicate that KBC appears to be less exposed to industrial groups active in the 7 high-carbon sectors (fossil fuels power automotive shipping aviation cement and steel) compared to the 16 other PACTA pilot banks
bull KBC is involved in a project to further develop the methodology used within the UNEP FI programme The goal of which is to identify the physical risks arising from certain climate scenarios for the most significantly affected sectors in our loan portfolio We have begun the analysis of physical risks for mortgage loans in Flanders and transition risks for the metals sector
Pilots
bull In 2019 we began to pilot the PCAF methodology to calculate the carbon footprint of the portfolios car lease car loans mortgage loans for residential real estate and commercial real estate
We have launched 3 pilot projects (PACTA PCAF and UNEP FI) working on a series of tools and methodologies (1) to enhance our ability to identify and to translate climate-related risks and opportunities in our strategy(2) quantify the indirect impact of our most carbon-intensive sectors and business lines
Our sustainability strategyPreparing for a science-based approach
25
Contents
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT
30 SEPTEMBER 2020
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
63
15
21
Belgium
Group Centre
Czech Republic
International Markets
2
26
Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer deposits increasedy-o-y in most of our core countries
Higher net interest income and lower net interestmargin
Slightly higher net fee and commission income
Lower net gains from financial instruments at fairvalue and lower net other income
Excellent result of non-life insurance and excellentsales of life insurance y-o-y
Strict cost management
Sharply lower net impairments on loans
Solid solvency and liquidityComparisons against the previous quarter unless otherwise stated
3Q 2020 key takeaways
Excellent net result of 697m EUR in 3Q20
ROE 7 (15 in 3Q20) Cost-income ratio 59 (adjusted for specific items)
Combined ratio 83 Credit cost ratio 061 (017 without
collective Covid-19 impairments) Common equity ratio 166 (B3 DC fully loaded)
Leverage ratio 59 (fully loaded)
NSFR 146 amp LCR 142
9M203Q20 financial performance
Net result
when evenly spreading the bank tax throughout the year 784m EUR collective Covid-19 impairments in 9M20 of which 637m EUR management overlay and 147m EUR impairments captured by the ECL models through the updated IFRS 9 macroeconomic variables
430
745612
702
-5
210
697
1Q19 2Q19 3Q19 2Q201Q204Q19 3Q20
27
Net result at KBC Group
Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-companygroup items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT
430
745
612702
-5
210
697
1Q201Q19 3Q192Q19 3Q204Q19 2Q20
NET RESULT AT KBC GROUP334
618
514586
-11
42
546
2Q201Q19 3Q203Q192Q19 1Q204Q19
68 83 79 7936
85 73
3361 66
94119 134
-20 -46 -30 -31 -50
157
-4
1Q19 2Q19 4Q193Q19
-13-20
1Q20
173
2Q20 3Q20
96
124 99143
3
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT
Amounts in m EUR
Non-Life result
Life result
Non-technical amp taxes
28
Higher net interest income and lower net interest margin
Net interest income (1122m EUR)bull Increased by 4 q-o-q and decreased by 4 y-o-ybull The q-o-q increase was driven primarily by
o the positive impact of TLTRO3 (+26m EUR q-o-q)o a positive one-off item (+26m EUR NII insurance)o higher margin on new production mortgages than the margin on the
outstanding portfolio in Belgium the Czech Republic and Slovakiao higher netted positive impact of ALM FX swapspartly offset byo the further negative impact of the CNB rate cuts (as the last CNB rate cut
from 100 to 025 happened early May 2020)o lower reinvestment yields
bull The y-o-y decrease was mainly the result of the CNB rate cuts thedepreciation of the CZK amp HUF and the negative impact of lowerreinvestment yields
Net interest margin (181)bull Decreased by 1 bp q-o-q and by 13 bps y-o-y due mainly to the CNB
rate cuts the negative impact of lower reinvestment yields and anincrease of the interest-bearing assets (denominator)
NIM
NII
992 971 977
117 114 15
2Q20
118 111124 1
114
1006
1195
2Q19
14
-1
1182
10661044
1
3Q19
112212
1057
4Q19
17
1Q19
1129
1Q20
166106
-1
131
3Q20
1132 11741083
3Q191Q19
181
2Q19 2Q204Q19 1Q20
194198
3Q20
194 194 197
182
Amounts in m EUR
NII - netted positive impact of ALM FX swapsNII - Holding-companygroup
NII - InsuranceNII - Banking
From all ALM FX swap desks NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps amp repos
Non-annualised Loans to customers excluding reverse repos (and bonds) Growth figures are excluding FX consolidation adjustments reclassifications and collective Covid-19 ECL Customer deposits including debt certificates but excluding repos Customer deposit volumes excluding debt certificates amp repos +1 q-o-q and +9 y-o-y
ORGANIC VOLUME TREND Total loans ow retail mortgages Customer deposits AuM Life reserves
Volume 158bn 69bn 212bn 204bn 27bn
Growth q-o-q +1 +2 +1 +1 0
Growth y-o-y +4 +6 +4 -4 -3
29
Slightly higher net fee and commission income
Amounts in bn EUR
AuM
210 210 212 216
193202 204
4Q191Q19 3Q202Q203Q192Q19 1Q20
264 270 275 279 270 237 245
219 230 237 243 229219 218
-73 -65 -68 -77 -71 -68 -73
3Q201Q19
410
2Q19 3Q19 4Q19 2Q201Q20
435 444 445 429388 390
Distribution Banking services Asset management services
Amounts in m EUR Net fee and commission income (390m EUR)bull Up by 1 q-o-q and down by 12 y-o-ybull Q-o-q increase was the result of the following
o Net FampC income from Asset Management Services increased by4 q-o-q as a result of higher management fees partly offset bylower entry fees from unit-linked life insurance products
o Net FampC income from banking services roughly stabilised q-o-qas higher fees from payment services and higher networkincome was offset by lower securities-related fees (after twoexceptionally strong quarters)
o Distribution costs rose by 8 q-o-q due chiefly to highercommissions paid linked to increased non-life insurance sales
bull Y-o-y decrease was mainly the result of the followingo Net FampC income from Asset Management Services fell by 11
y-o-y as a result of lower management fees and entry feeso Net FampC income from banking services decreased by 8 y-o-y
(-6 y-o-y excluding FX effect) driven mainly by lower fees frompayment services (partly due to less transaction volumes as aresult of Covid-19 partly due to the SEPA regulation) and lowerfees from credit files amp bank guarantees partly offset by highersecurities-related fees
o Distribution costs rose by 7 y-o-y due chiefly to highercommissions paid linked to banking products and increasednon-life insurance sales
Assets under management (204bn EUR)bull Increased by 1 q-o-q due mainly to a positive price effect (+1)
next to limited net inflows in mutual fund businessbull Decreased by 4 y-o-y due mainly to a negative price
effect
FampC
30
Insurance premium income (gross earned premiums) at 715m EURbull Non-life premium income (448m EUR) increased by
2 y-o-ybull Life premium income (267m EUR) down by 3 q-o-q
and by 8 y-o-y
The non-life combined ratio for 9M20amounted to an excellent 83 This is theresult of 4 y-o-y premium growth combinedwith 13 y-o-y lower technical charges in9M20 The latter was due mainly to lowernormal claims in 9M20 (especially in Motordue to Covid-19) and a negative one-off in9M19 (-16m due to reassessment on claimsprovisions) However note that 9M20 wasimpacted by a higher negative cededreinsurance result compared with 9M19
Non-life premium income up y-o-y and excellent combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUMS)
9093 92
1Q 1H 9M
83
FY
9283
90
2019 2020
415 425 440 441 443 435 448
351 317 291 364 297 276 267
805740
1Q19 2Q19 3Q19 4Q19 3Q201Q20 2Q20
766 742 731 712 715
Life premium income Non-Life premium income
Amounts in m EUR
31
Non-life and life sales up y-o-y
Sales of non-life insurance productsbull Up by only 1 y-o-y due to negative impact of Covid-19
on renewals of existing business (mainly lsquoWorkmenrsquoscompensationrsquo and lsquoGeneral third-party liabilityrsquo)
Sales of life insurance productsbull Decreased by 25 q-o-q but increased by 4 y-o-ybull The q-o-q decrease was driven by both lower sales of
unit-linked products and guaranteed interest products inBelgium
bull The y-o-y increase was driven entirely by higher sales ofunit-linked products in Belgium (due to a shift frommutual funds to unit-linked products by Private Bankingclients) only partly offset by lower sales of guaranteedinterest products (due mainly to the suspension ofuniversal single life insurance products in Belgium)
bull Sales of unit-linked products accounted for 49 of totallife insurance sales in 3Q20
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
214 198 161 160 177327
205
302 261242 311 249
235
214
4Q19 2Q201Q19 3Q202Q19 3Q19 1Q20
516459
403471
427
561
420
Guaranteed interest products Unit-linked products
534
412 411 400
567
415 416
1Q204Q192Q191Q19 2Q203Q19 3Q20
Amounts in m EUR
32
Lower FIFV and net other income
The q-o-q decline in net gains from financialinstruments at fair value was attributable mainlyto the exceptional rebound in 2Q20bull a negative change in market credit and funding value
adjustments although still a positive number (mainly asa result of changes in the underlying market value of thederivatives portfolio due to decreasing counterpartycredit spreads amp KBC funding spread partly offset bylower long-term interest rates)o FVA 24m EUR (-49m EUR q-o-q)o CVA 30m EUR (+3m EUR q-o-q)o MVA 2m EUR (+1m EUR q-o-q)
bull lower dealing room income after an excellent 2Q20result
bull a lower net result on equity instruments (insurance)
Net other income amounted to 37m EUR belowthe normal run rate of around 50m EUR perquarter due to among other things an additionalimpact of the tracker mortgage review in Ireland of-6m EUR (of which -4m related to the trackermortgage fine)
FIFV
Amounts in m EUR
-186
10062 48
-59
126
-82
-2
1Q19
-3
8
-8
4Q19
-2219
-37 -25-1
130
17
85
3Q203Q19
44
29 1028-58
1Q20
-3
2Q20
11 3155
2Q19
13
19
-2-46
-385
253
99
59
133
43 47 50 5337
4Q191Q19 2Q19 3Q19 3Q202Q201Q20
NET OTHER INCOME
Dealing room amp other incomeMVACVAFVA Net result on equity instruments (overlay insurance)
M2M ALM derivatives
33
Strict cost management
Operating expenses excluding bank taxesdecreased by 37 y-o-y in 9M20 roughly in linewith our FY20 guidance of -35 y-o-y due chieflyto the announced cost savings related to Covid-19
Operating expenses excluding bank taxesincreased by 3 q-o-q primarily as a result of
o higher staff expenses (largely due to reducedaccrued variable remuneration in 2Q20 and wageinflation in most countries despite less FTEs)
o seasonally higher marketing costs higher facilitiesand depreciation amp amortisation costs
partly offset byo seasonally lower ICT costs and professional fees
Costincome ratio (banking) adjusted for specificitems at 58 in 3Q20 and 59 YTD (58 inFY19) Costincome ratio (banking) 52 in 3Q20and 61 YTD both distorted by bank taxes andthe latter by lower FIFV
Total bank taxes (including ESRF contribution) areexpected to increase by 3 y-o-y to 504m EUR inFY20
OPERATING EXPENSES
913 957 947 994 931 877 905
382 407
1338
3Q19
2130
1Q19 2Q19 4Q19
28 51
1Q20
27
2Q20
904
3Q20
1296
988 975 1045926
Bank tax Operating expenses
See glossary (slide 87) for the exact definitionAmounts in m EUR
TOTAL Upfront Spread out over the year
3Q20 1Q20 2Q20 3Q20 1Q20 2Q20 3Q20 4Q20e
BE BU 0 289 2 0 0 0 0 0
CZ BU 0 40 0 0 0 0 0 0
Hungary 20 25 1 0 20 18 20 24
Slovakia 0 3 0 0 8 8 0 0
Bulgaria 0 17 -1 0 0 0 0 0
Ireland 1 4 -1 0 1 1 1 26
GC 0 0 0 0 0 0 0 0
TOTAL 21 377 0 0 29 27 21 50
EXPECTED BANK TAX SPREAD IN 2020
Amounts in m EUR
34
Sharply lower asset impairments
Sharply lower asset impairments q-o-qbull The q-o-q decrease of loan loss provisions was attributable
mainly too 746m EUR collective Covid-19 impairments booked in 2Q20
of which 5m was reversed in 3Q20 (small impact fromupdated IFRS 9 macroeconomic variables and managementoverlay)
o lower loan loss impairments in Belgium and the CzechRepublic (2Q20 was impacted by several corporate files inboth countries)
bull Impairment of 11m EUR on lsquootherrsquo due to several small items(of which 4m EUR ndash the largest amount ndash as the result of animpairment on a lease contract related to a HQ building inHungary)
The credit cost ratio in 9M20 amounted tobull 17 bps (12 bps in FY19) without collective Covid-19 ECLbull 61 bps with collective Covid-19 ECL
The impaired loans ratio improved to 32 18 ofwhich over 90 days past due
ASSET IMPAIRMENT
67 75 78 9957
4369
26
3Q19
41
1Q19 3Q20
36
2Q19
63
1
1Q20
25
7
20
4Q19
12
141 746
2Q20
11
-5
40
82
857
IMPAIRED LOANS RATIO
32
19
4Q19
2124
1Q19 3Q192Q19
20 19
1Q20
37
19
2Q20
18
3Q20
43
35 35 3433
CREDIT COST RATIO
FY18FY14 FY15 FY19 9M20FY16
017
023
FY17
042
009
-006 -004
012
061
of which over 90 days past dueImpaired loans ratio
Other impairments
Collective Covid-19 ECL
Impairments on financial assets at AC and FVOCI
Amounts in m EUR
CCR with collective Covid-19 ECL CCR without collective Covid-19 ECL
35
Loan loss experience at KBC
9M20CREDIT COST
RATIO
FY19CREDIT COST
RATIO
FY18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
AVERAGE lsquo99 ndashrsquo19
Belgium 059 022 009 009 012 na
Czech Republic 064 004 003 002 011 na
International Markets 079 -007 -046 -074 -016 na
Group Centre -027 -088 -083 040 067 na
Total 061 012 -004 -006 009 042
Credit cost ratio amount of losses incurred on troubled loans as a of total average outstanding loan portfolio
36
Impaired loans ratios of which over 90 days past due
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
21
1Q19 2Q19
20
4Q19 3Q20
1819
2Q201Q20
19
43
19
3Q19
37 35 35 33 34 32
24
Impaired loans ratioOf which over 90 days past due
2Q19 3Q19
11
1Q20
12
2Q20
11
3Q20
13
1Q19 4Q19
23
131415
24 2523 22 22 21
49
1Q20
48 45
3Q19
85
5176
4Q191Q19 2Q20
58
2Q19
91
53
118
98
82 78 72
3Q20
BELGIUM BU
11
2222
12
2Q20
12
3Q20
11
1Q20
24
12
1Q19 3Q19
11
26
2Q19
11
4Q19
23 23 24
KBC GROUP
37
Cover ratios
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
453
3Q191Q19
422
2Q19 2Q204Q19 1Q20 3Q20
656599
420
604 603
420 434
604
448
624
452
617
Impaired loans cover ratio
Cover ratio for loans with over 90 days past due
1Q20 3Q20
472
2Q20
660
2Q191Q19
690
3Q19 4Q19
474 475
639
481
655 655
472
669
472 492
661
421 449
1Q19 2Q19 1Q203Q19 2Q204Q19 3Q20
644
430
625
423454
642
417
634 626659
464
654
4Q191Q19 3Q201Q20 2Q202Q19 3Q19
430
607
327 352
481
321
464
327
470
324
470 487
340
465
38
NET PROFIT ndash BELGIUM NET PROFIT ndash CZECH REPUBLIC
993 932605
439335
361412
1575
2016
1432
2019
1240
2017
1450
1089
2018 2020
1344
9M20 ROAC 12
Amounts in m EUR
465 534 484584 281
131168 170
205
2018
702
2016
596
2017 2019 2020
654
789
9M20 ROAC 22NET PROFIT ndash INTERNATIONAL MARKETS
289370 440
260 113
13974
93
119
20192016
533
2017 2018
444
2020
428379
9M20 ROAC 7
Overview of contribution of business units to 9M20 result
4Q 9M 4Q 9M 4Q 9M
NET PROFIT ndash KBC GROUP
902
685462 621 702
2016
1742 19482113
2017
1787
2018 2019 2020
2427 2575 2570 2489
9M20 ROAC 11
4Q 9M
39
Balance sheet KBC Group consolidated at the end of September 2020
76
67
158
146
Total assets (EUR 321bn)
Other (incl interbank loans reverse repos property amp equipment etc)
Insurance investment contracts
Loan book (loans and advances to customers)
Investment portfolio (equity and debt securties)
Trading assets
51
2621
185
12197
Total liabilities and equity (EUR 321bn)
Deposits from customers
Technical provisions before reinsurance NL and L
Other (incl interbank deposits)
Equity (including AT1)
Other MREL instruments and debt certificates
Liabilities under insurance investment contracts
Trading liabilities
Credit quality Capital adequacy ampliquidity position
40
Y-O-Y ORGANIC VOLUME GROWTH
4
BE
Volume growth excluding FX effects divestmentsacquisitions and collective Covid-19 ECL Loans to customers excluding reverse repos (and bonds) Customer deposits including debt certificates but excluding repos Total customer loans in Bulgaria new bank portfolio +16 y-o-y while legacy -28 y-o-y
Loans DepositsRetail mortgages
35
2
8
Loans Retail mortgages
6
Deposits
2
Retail mortgages
Loans Deposits
121214
DepositsLoans Retail mortgages
6
1011
DepositsLoans
22
Retail mortgages
17
8
DepositsLoans Retail mortgages
22
-5
6
4
Loans Retail mortgages
Deposits
4
Balance sheetLoans and deposits continue to grow in all countries
CR
41
Sectorial breakdown of outstanding loan portfolio (1)(179bn EUR) of KBC Bank Consolidated
11
7
14
6
8443
3
42
Services
Automotive
Distribution
Rest
Building amp construction
Real estate
Finance amp insurance
AuthoritiesAgriculture farming fishing
Private Persons
Chemicals
16
17
45
Other sectors
Electricity
Food producers
14
14
Metals
10Machinery amp heavy equipment
07
Shipping 07
Hotels bars amp restaurants
05
Oil gas amp other fuels
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
42
Geographical breakdown of the outstanding loan portfolio (2)(179bn EUR) of KBC Bank Consolidated
541
Belgium
Ireland
163
2132
Other CEE
Czech Rep
Slovakia
58
50
Hungary
Bulgaria87
Other W-Eur 0315
North America
14
Asia
16Rest
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
43
Government bond portfolio ndash Notional value
Notional investment of 497bn EUR in government bonds (excl trading book) at end of 9M20 primarily as aresult of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-incomeinstruments
Notional value of GIIPS exposure amounted to 55bn EUR at the end of 9M20
27
18
67
12
9
4
Bulgaria3
Belgium
Czech Rep
Slovakia3
PolandHungary
3Italy
France
Other
SpainGermany
Austria Netherlands
IrelandPortugal
END OF 9M20(Notional value of 497bn EUR)
() 1 () 2
29
14
366
4
13
10
5
France
Belgium
Poland
Czech Rep
Spain
Italy
Hungary
3
SlovakiaBulgaria
Other
Germany Austria
Netherlands IrelandPortugal
END OF FY19(Notional value of 461bn EUR)
() 1 () 2
44
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
45
No IFRS interim profit recognition given the more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share The impact of transitional was limited to 2 bps at the end of 9M20 as there was no profit reservation At year-end2020 the impact of the application of the transitional measures is expected to result in a positive impact on CET1 of56 bps compared to fully loaded
Strong capital position (1)Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
1045 OCR
FY19
163
9M191H19
166
1Q19 1Q20 1H20
166157
9M20
156 154
171
The fully loaded common equity ratiostabilised q-o-q at 166 at the end of 9M20based on the Danish Compromise despite1bn EUR RWA add-ons for anticipated PDmigrations
KBCrsquos CET1 ratio of 166 at the end of9M20 represents a solid capital bufferbull 86 capital buffer compared with the current
theoretical minimum capital requirement of795 (as a result of the announced ECB andNational Bank measures which providedsignificant temporary relief on the minimumcapital requirements)
bull 61 capital buffer compared with the OverallCapital Requirement (OCR) of 1045 (which stillincludes the 250 capital conservation buffer ontop of the 795)
bull 59 capital buffer compared with theMaximum Distributable Amount (MDA) of1069 (given small shortfall in AT1 and T2bucket)
The difference between fully loaded CET1ratio and the IFRS9 transitional CET1 ratioonly amounted to 2 bps in 3Q20
795 theoretical regulatory minimum
1069 MDA
Total distributable items (under Belgian GAAP) KBC Group 106bn EUR at 9M 2020 of whichbull available reserves 949mbull accumulated profits 8 192m
46
Strong capital position (2)
Fully loaded Basel 3 total capital ratio (Danish Compromise)
157 CET1
18921 T2
16 AT1
1Q19 1H19
21 T2
156 CET1 166 CET1
16 AT1 15 AT1
1Q209M19
154 CET 1
19 T2
15 AT1
206
20 T2
171 CET1
FY19
19 T2192
15 AT1
163 CET1
18 T2
15 AT115 AT1
1H20
18 T2
9M20
193 197 198 198
166 CET1
The fully loaded total capital ratiostabilised q-o-q at 198 at the end of9M20
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
47
Fully loaded Basel 3 leverage ratio and Solvency II ratio
55
1Q19 1H19 9M19 FY19 1Q20
52
1H20 9M20
51 50 52 48 48
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
1H191Q19
65
9M19 FY19
60
9M201H201Q20
61 6068
60 59
Solvency II ratio
1H20 9M20
Solvency II ratio 198 196
The q-o-q delta in the Solvency II ratio was mainlydriven by a lower compensating effect of the volatilityadjustment
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over
2019 profit of 25 EUR per share
No IFRS interim profit recognition given more stringent ECB approach Taking into account the adjustment of the final dividend over 2019
48
Strong customer funding base with liquidity ratiosremaining very strong
KBC Bank continues to have a strong retailmid-cap deposit base in its core markets ndash resulting in a stable funding mix with a significant portion of the fundingattracted from core customer segments and markets
KBC Bank participated to the TLTRO III transaction for an amount of 195bn EUR in June (bringing the total TLTRO exposure to 219bn EUR) which significantlyincreased its funding mix proportion and is reflected in the lsquoInterbank Fundingrsquo item below
69 customer
driven
Net Stable Funding Ratio (NSFR) is based on KBC Bankrsquos interpretation of the proposal of CRR amendment Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements From EOY2017 onwards KBCBank discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure
Ratios FY19 9M20 Regulatory requirement
NSFR 136 146 ge100
LCR 138 142 ge100
NSFR is at 146 and LCR is at 142 by the end of 9M20bull Both ratios were well above the regulatory requirement of 100 due
to a strong growth in customer funding and the participation toTLTRO III
9
6969
9
73
2
63
8
719
10
2
71
FY13
18
13
93
FY18
7
FY14
18
68
86
7
11
3
71
FY15
10
FY19
48
FY16
8
62
48
9
63
1
FY17
8 8
72
7
82
9M20
Interbank FundingSecured Funding
Total Equity
Debt issues placed at institutional relationsCertificates of depositFunding from Customers
Government and PSE
Mid-cap
Retail and SME
5
19
76
133 766 139 560 143 690 155 774 163 824 176 045 189 453
FY14 FY15 FY16 FY17 FY18 FY19 3Q20
Funding from customers (m EUR) of KBC Banking Group
49
Upcoming mid-term funding maturities
In December 2019 KBC Bank NV decided to early repay theremaining part of the TLTRO II (ie 2545bn EUR) and entered intothe TLTRO III for 25bn EUR
In May 2020 KBC Bank issued a covered bond for an amount of1bn EUR with a 55-year maturity
In June 2020 KBC Group issued its second Green seniorbenchmark for an amount of 500m EUR with a 7-year maturitywith call date after 6 years
In June 2020 KBC Bank participated in TLTRO III for an amount of195bn EUR which brings the total TLTRO exposure to 219bn EURmaturing in 2023
In September 2020 KBC Group issued a senior benchmark for anamount of 750m EUR with a 6-year maturity with call date after 5years
KBC Bank has 6 solid sources of long-term fundingbull Retail term depositsbull Retail EMTNbull Public benchmark transactionsbull Covered bondsbull Structured notes and covered bonds using the private
placement formatbull Senior unsecured T1 and T2 capital instruments issued at KBC
Group level and down-streamed to KBC Bank
38
2816
36
01
06
16
09 0908
0503 03
0
1000
2000
3000
4000
5000
6000
7000
2020 2021 2022 2023 2024 2025 2026 2027 gt= 2028
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond
Total outstanding = 19bn EUR
(Including of KBC Grouprsquos balance sheet)
50
KBC has strong buffers cushioning Sr debt at all levels (9M 2020)
KBC GroupSenior6 518
Tier 2 2 179
Additional Tier 11 500
CET1 (transitional)16 606
KBC Bank
Tier 2 1 680
Additional Tier 11 500
CET1 (transitional)12 872
176
KBC Insurance
Tier 2 500
Parent shareholders equity3 578
Buffer for Sr level 226bn EUR
Buffer for Sr level 203 bn EUR
Legacy T2 issued by KBC Bank will disappear over time
nominal amounts in million EUR
Subordinated on loan by KBC Group6 518
51
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at KBC Group level with bail-in as thepreferred resolution tool
SRBrsquos currently applicable approach to MREL is defined in the lsquo2018 SRB Policy for the 2nd wave of resolution plansrsquopublished on 16 January 2019 which is based on the current legal framework (BRRD 1)
The actual binding target is 967 as of TLOF as from 31-12-2021
TLOF Total Liabilities and Own FundsLAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR Combined Buffer Requirement = Conservation Buffer (25) + O-SII buffer (15) + countercyclical buffer (015 in previous target 035 in revised target)
KBC complies with resolution requirementsMREL target applicable as from 31-12-2021
LAA
RCA
MCC
8 P1
175 P2R
435 CBR
8 P1
175 P2R
31 (CBR ndash 125)
100 RWA
95 RWA
= 263as of RWA
MREL target = 967 as of TLOF
x RWATLOF balance
31122017=
967 as of TLOF
Actual in of TLOF
23
59
06
94
05
3Q20
HoldCo senior
T2 part of own fundsAT1
CET1
52
Available MREL as a of TLOF
1Q201Q19 1H19 9M19 FY19
93104
9M201H20
96 98 10093 94
Available MREL () as a of TLOF
Hybrid approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share As of 1H20 MREL ratio includes the impact of IFRS9 transitional measures
The decrease of MREL as a of TLOF asof 1H20 can be fully explained by theparticipation in TLTRO III for an amountof 195bn EUR in June 2020 Excludingthis MREL would have amounted to101 at the end of 9M20
53
Latest credit ratings
SampPMoodyrsquos Fitch
Gro
upBa
nkIn
sura
nce
Senior UnsecuredTier IIAdditional Tier IShort-term P-2 A-2 F1Outlook Stable Negative Negative
Baa1 A- A- BBB BBB+
Ba1 BB+ BBB-
Senior Unsecured
Short-term P-1 A-1 F1Outlook Stable Stable Negative
A1 A+ A+Tier II
Covered Bonds Aaa - AAA
-
Financial Strength RatingIssuer Credit Rating
- A -- A -
BBB
Outlook - Negative -
-
Latest updates triggered by the COVID-19 pandemicbull 23 Apr 2020 SampP revised KBC Group and KBC Insurance outlook to negative The outlook for KBC Bank remains Stable because of the
substantial buffers of already existing bail-in-able debtbull 30 Mar 2020 Fitch revised KBC Group and KBC Bank outlook to negative Next to that driven by methodology changes Fitch
downgraded Tier 2 debt by one notch to lsquoBBB+ and upgraded AT1 debt by one notch to lsquoBBB-rsquo
54
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
55
COVID-19 (19)
Latest status of government amp sector measures in each of our core countries
Opt-in 3 months for consumer finance 6-9months for mortgages and non-retail loans(until 31 Oct 2020 and can be extended to 31Dec 2020)bull For private persons deferral of principal
and interest payments while only deferralof principal payments for non-retail clients
bull Interest is accrued over the deferralperiod apart from families with netincome of less than 1700 EUR For thelatter group this results in a modificationloss for the bank (-11m EUR booked in 2Q)
Belgium
Defe
rral
of p
aym
ents
Guar
ante
e Sc
hem
e amp
liq
uidi
ty a
ssist
ance
HungaryOpt-in 3 or 6 monthsApplication period finished on 30 Sep 2020 howeverend of Oct 2020 all deferrals expiredbull Applicable for retail and non-retail clientsbull For private persons and entrepreneurs deferral of
principal and interest payments while onlydeferral of principal payments for non-retail clients
bull Interest is accrued over the deferral period butmust be paid in the final instalment resulting in amodification loss for the bank (-5m EUR booked in2Q)
bull For consumer loans the interest during thedeferral period may not exceed the 2-week reporate + 8
Czech Republic
Opt-out a blanket moratorium originally until 31 Dec 2020 Extension of the deferral until 30 JUN 2021 but with certain eligibility criteria (no detailed legislation available yet for non-retail clients)bull Applicable for retail and non-retail clientsbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period
but unpaid interest cannot be capitalisedand must be collected on a linear basisduring the remaining (extended) lifetimeThis results in a modification loss for thebank (-18m EUR booked in 1Q revised to -11mEUR in 2Q based on the actual opt-out ratio)
bull A state guarantee scheme of up to 40bn EURto cover losses incurred on future non-retailloans granted before 31 Dec 2020 to viablecompanies with a tenor of maximum 12months and a maximum interest rate of125 Guarantee covers 50 of losses above3 of total credit losses and 80 above 5of losses
bull As of 3Q a revised state guarantee schemeof up to 10bn EUR has been offered to coverlosses on future SME loans granted before 31Dec 2020 with a tenor between 1 and 3years and with a maximum interest rate of2 Guarantee covers 80 of all losses
bull The Czech-Moravian Guarantee and DevelopmentBank (CZMRB) launched several guaranteeprograms (COVID II COVID II Praha COVID III) forworking capital loans provided by commercial banksto non-retail clients The loan amount isguaranteed up to 80 or 90 of the loan amountInterest on these loans is subsidised up to 25(COVID II)
bull The Export Guarantee and Insurance Corporation(EGAP) under its COVID Plus program offersguarantees on loans provided by commercial banksEGAP guarantees 70 to 80 of the loan amountdepending on the rating of the debtor The programis aimed at companies in which exports accountedfor more than 20 of turnover in 2019
bull A guarantee scheme is provided byGarantiqa and the Hungarian DevelopmentBank These state guarantees can cover upto 90 of the loans with a maximum tenorof 6 years
bull Funding for growth scheme (launched byMNB) a framework amount of 42bn EURfor SMEs that can receive loans with a 20-year tenor and a maximum interest rate of25
bull Annual interest rate on personal loansgranted by commercial banks may notexceed the central bank base rate by morethan 5pp (until 31 Dec 2020)
56
Opt-in 9 months or 6 months (for leases)Application period is still running (but most will end in 1Q 2021)bull Applicable for retail customers SMEs and
entrepreneursbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but
the customer has the option of paying allinterest at once after the moratorium or payingit on a linear basis The latter option wouldresult in an immaterial modification loss for thebank
Slovakia
Defe
rral
of p
aym
ents
Gua
rant
ee S
chem
e amp
liq
uidi
ty a
ssist
ance
IrelandBulgaria Opt-in 3 to 6 months Application period expired on 30 Sep 2020bull Applicable for mortgage loans consumer
finance loans and business banking loanswith a repayment schedule
bull Deferral of principal and interest paymentsfor up to 6 months (with review after 3months) for mortgages amp consumer financeand 3 months for business banking
bull Option for customers to extend their loanterm by up to 6 months to match thepayment holiday
bull Interest is accrued over the deferral period
bull Anti-Corona Guarantee program offered by theSlovak Investment Holding (SIH) and aimed atSMEs consists of two components (i) an 80state guarantee with a 50 portfolio cap and (ii)the interest rate subsidy of up to 4 pa
bull In addition financial aid in the form of the Stateguarantee schemes with guaranteed fee subsidycan be provided by the (i) Slovak InvestmentHolding (guarantee of up to 90 for loans lt 2mEUR) and the (ii) Export-Import Bank of SR(guarantee of up to 80 for loans of 2-20m EUR)No portfolio cap is applied
COVID-19 (29)
Latest status of government amp sector measures in each of our core countries
bull 04bn EUR of state guaranteesprovided by the BulgarianDevelopment Bank to commercialbanks Of this amount 01bn EUR isused to guarantee 100 of consumerloans while 03bn EUR is planned to beused to guarantee 80 of non-retailloans
bull The Irish authorities put substantial reliefmeasures in place amongst other measuresvia the SBCI KBC Bank Ireland is mainlyfocused on individual customers thereforethe relief programs for business customersare less relevant
Opt-in 6 months (until 31 Mar 2021 at the latest)Application period expired on 30 Sep 2020bull Applicable for retail and non-retail
customersbull Deferral of principal with or without
deferral of interest paymentsbull In the case of principal deferral only the
tenor is extended by 6 monthsbull Interest is accrued over the deferral
period and is payable in 12 months(consumer and non-retail) or 60 months(mortgages) in equal instalments
57
COVID-19 (39)
Overview of EBA compliant payment holidays and public Covid-19 guarantee schemes
Payment holidays ndash by country
Hungary opt-out a blanket moratorium applicable for retail and non-retail loans bull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but unpaid interest cannot be capitalised
and must be collected on a linear basis during the remaining (extended) lifetime
Payment holidays excl Hungary ndash by segment
By the end of September 2020bull The volume of granted loans with payment holidays according to the EBA definitions amounted
to 137bn EUR or 9 of total loan book
bull Approx 1bn EUR of moratoria already expired of which 97 have resumed paymentsbull Government guaranteed loans granted (under Covid-19 scheme) for 583m EUR
Loans and advances under public Covid-19 guarantee schemes
Payment holidays ndash by segment
bull Loans to customers excluding reverse repos (and bonds)
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichBelgium 77 25 7Czech Republic 21 22 7Hungary (opt-out) 17 128 37Slovakia 08 12 10Bulgaria 02 5 7Ireland 12 6 12
Status 30 Sep 2020 Loans grantedEUR m
obligorsk
KBC Group 583 7of whichSME 261Corporate 309
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichMortgages 45 7SME 43 13Corporate 42 10
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group (excl HU) 120 70 8of which
Mortgages 40 6SME 36 11Corporate 39 9
58
COVID-19 (49)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
OPTIMISTIC SCENARIO BASE-CASE SCENARIO PESSIMISTICSCENARIO
Virus spread and impact sufficiently under control thanks to continued social distancing and other precautionary measures avoiding the need for another lockdown period
Virus spread and impact sufficiently under control thanks to continued and possibly intensified social distancing and other precautionary measures avoiding the need for another full lockdown period
Virus reappears and continues to weigh on society and economy necessitating on-off lockdown periods that have a significant impact on economic activity
Steep and steady recovery from 3Q20 onwards with a fast return to pre-Covid-19 levels of activity
More moderate but still steady recovery from 3Q20 onwards with a recovery to pre-Covid-19 levels of activity by the end of 2023
Another (series of) shock(s) takes place leading to an interrupted and unsteady path to recovery
Sharp short V-pattern U-pattern More L-like pattern with right leg only slowly increasing
The Covid-19 pandemic continues to be the maindriver of the global economy The epidemiologicaldevelopments are far from good The number ofnew Covid-19 cases are rapidly increasing in manycountries Because of this uncertainty we continueworking with three alternative scenarios a base-case scenario a more optimistic scenario and amore pessimistic scenario
bull The definition of each scenario reflects the latestvirus-related and economic developments while wecontinue to assign the same probabilities as inprevious quarter 45 for the base-case 40 for thepessimistic and 15 for the optimistic scenario
bull The macroeconomic information is based on the economic situation in September 2020 and hence does not yet reflect the official macroeconomic figures for 3Q20 as reported by different authorities
Real GDP growth
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Euro area -67 -83 -116 87 52 -10 29 20 22 Belgium -61 -90 -111 91 51 -11 29 20 20 Czech Republic -61 -70 -85 62 47 13 28 30 33 Hungary -30 -62 -120 40 50 40 35 35 35Slovakia -65 -80 -95 66 61 16 45 35 38 Bulgaria -40 -80 -120 40 50 40 30 30 30 Ireland 00 -50 -100 50 40 10 30 35 25
2020 2021 2022 bull For the euro area we haverevised GDP growth for2020 upwards to -83and mechanically thisless negative outcome for2020 translates into adownward revision ofgrowth to 52 for 2021
59
COVID-19 (59)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
Unemployment rate
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 66 72 78 70 76 110 60 69 95Czech Republic 43 51 61 42 54 73 35 48 68 Hungary 48 61 75 42 56 75 40 48 65 Slovakia 75 90 100 80 100 120 70 80 105 Bulgaria 60 80 110 43 100 130 42 70 120 Ireland 80 110 200 60 70 160 50 60 120
2020 2021 2022
House-price index
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 15 -05 -15 10 -30 -60 25 10 -20Czech Republic 53 48 35 10 -08 -40 41 20 -08 Hungary 40 20 -75 10 -10 -50 31 20 -10 Slovakia 65 50 20 10 -10 -50 30 20 -05 Bulgaria 05 -20 -30 10 -10 10 30 30 15Ireland -20 -70 -120 40 35 0 40 35 10
2020 2021 2022
60
COVID-19 (69)
Steady staging of loan portfolio
bull As disclosed during previous quarters our Expected Credit Loss (ECL)models were not able to adequately reflect all the specificities of theCovid-19 crisis or the various government measures implemented inthe different countries to support households SMEs and Corporatesthrough this crisis Therefore an expert-based calculation at portfoliolevel is required via a management overlay
bull In the first quarter this calculation was limited to a certain number of(sub)sectors In the second quarter driven by significant uncertaintiesaround the Covid-19 crisis the scope of the management overlay wasexpanded to include all sectors of our corporate and SME portfolio aswell as our retail portfolio
bull To be consistent with the second quarter we recalculated the Covid-19ECL based on the same methodology used on the performing and non-performing portfolio by the end of September 2020 but including thelatest economic scenarios
bull Until now only minor PD shifts have been observed in our portfoliowhich is reflected in stable staging percentages Note that in line withECBESMAEBA guidance any general government measure grantedbefore the end of September 2020 has not led to automatic staging
Total loan portfolio by IFRS 9 ECL stage
Loan portfolio
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
852
FY19
113 10735
860 854
33
1Q20
854
11334
1H20
Stage 3 11432
9M20
Stage 1
Stage 2
(in billions of EUR) YE19 1Q20 1H20 9M20Portfolio outstanding 175 180 179 179 Retail 42 40 41 42 of which mortgages 38 37 38 39 of which consumer finance 3 3 3 3 SME 22 21 21 22 Corporate 37 39 38 37
61
78
99
-2
234
43
150
-3
147
596
57
637
3Q20
2Q20
1Q20
9M20
121
845
52
1 018
Management overlay
Impairments on financial assets at AC and at FVOCI without any COVID-19 impactCovid-19 impact already captured by ECL models
Impairment on financial assets at AC and at FVOCI
Amounts in m EUR
Collective Covid-19 ECL = 784m
COVID-19 (79)
Impact of the collective Covid-19 ECL after 9M
Credit Cost (annualized)
FY19 3M20 1H20 9M20
Without collective COVID-19 ECL 012 017 020 017
With collective COVID-19 ECL 027 064 061
Collective Covid-19 ECL not annualized
bull The updated assessment of the impact of Covid-19 on theperforming and non-performing portfolio after 9M20 (see detailsin following slides) resulted in a total collective Covid-19 ECL of784m EUR (q-o-q release of 5m EUR) of which
bull a total management overlay of 637m EUR with a -2mEUR release being booked in 3Q20
bull the ECL models captured an impact of 147m EUR after9M through the updated macroeconomic variables usedin the calculation resulting in a q-o-q release of -3m EUR
bull The total collective Covid-19 ECL of 784m EUR in 9M20 consistsof 6 stage 1 85 stage 2 and 9 stage 3 impairments
bull Including the collective Covid-19 ECL the Credit Cost Ratioamounted to 061 in 9M20
bull We are reiterating our estimate for FY20 impairments (onfinancial assets at AC and at FVOCI) of roughly 11bn EUR as aresult of the coronavirus pandemic Depending on a number ofevents such as the length and depth of the economic downturnthe significant number of government measures in each of ourcore countries and the unknown number of customers who willavail themselves of these mitigating measures we estimate theFY20 impairments to range between roughly 08bn EUR(optimistic scenario) and roughly 16bn EUR (pessimisticscenario)
62
COVID-19 (89)
Collective Covid-19 ECL in more detail no major change in the classification of sector risk
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
SME amp Corporate loan portfolio of 104bn EUR broken down by sector sensitivity to Covid-19
36
23
41
Medium
Low
High
10
47
35
29
33
1219
12Building amp construction
33
9M20
Commercial real-estate
Distribution(retail amp wholesale)
Automotive
Services(entertainement leisure amp retirement homes)
MetalsShipping (transportation)Hotels bars amp restaurants
Sum of other sectors lt 1 (incl Aviation sector) No major change in the sector split between high-medium-low risk compared to the previous quarterOnly minor reallocations of underlying activities fromlsquohighrsquo to lsquomediumrsquo or even to lsquolowrsquo risk Also very limitedshifts from lsquomediumrsquo to lsquohighrsquo risk situated mainly in thefollowing sectors
Distribution A minor share of activities related to the wholesale distribution of apparel was moved into the lsquohigh riskrsquo category adding to the already designated retail part (mainly retail fashion)
Services Increase in lsquohigh riskrsquo category driven by retirement homes mainly in Belgium
Metals The activity related to the manufacture of metal structures linked to the construction of non-residential buildings was shifted into the lsquohigh riskrsquo category
Building amp construction
In the previous quarter the entire portfolio was allocated to lsquomedium riskrsquo dueto the limited lockdown interruption as this was one of the first sectors torestart In addition the temporary unemployment cover provided by the Belgiangovernment tempered the impact Now in the third quarter a limited share ofactivities related to the construction of non- residential buildings was shifted intothe lsquohigh riskrsquo category
Aviation sectorAs in the second quarter both sectors categorised as lsquohigh riskrsquo but with a limited share of 03 both
Exploration and production of oil gas amp other fuels
Composition of lsquoother sectors lt1rsquo in more detail
63
COVID-19 (99)
Collective Covid-19 ECL in more detail q-o-q release of 5m EUR
Collective Covid-19 ECL per country
9M20Optimistic Base Pessimistic Probability
EUR m 15 45 40 weightedKBC Group 471 621 908 714 70 784 -5 746 43By country
Belgium 300 366 450 390 20 410 -3 378 35Czech Republic 95 143 198 158 9 167 9 152 6Slovakia 23 30 50 37 0 37 -3 39 1Hungary 24 38 82 54 0 54 -1 54 1Bulgaria 7 16 25 18 5 23 -5 28 naIreland 22 28 103 57 36 93 -2 95 na
2Q20 1Q203Q20Performing portfolio impact Non-
Performing portfolio
Total9M20
3
Market share (end 2019) BE CZ SK HU BG IRL
Loans and deposits
Investment funds
Life insurance
Non-life insurance
GDP growth KBC data Sept lsquo20 Retail segment
2010
2110 910
30 24
7 13 16
8133 3
23
49 108 8
Real GDP growth BE CZ SK HU BG IRL
of Assets
2019
2020e
2021e
4
63
203 3 2
3414 25 24
5549
-80-80-90 -70 -50-62
IRELAND
BELGIUMCZECH REP
SLOVAKIA
HUNGARY
BULGARIA
37m clients507 branches104bn EUR loans137bn EUR dep
03m clients16 branches10bn EUR loans5bn EUR dep
42m clients221 branches28bn EUR loans39bn EUR dep
06m clients117 branches8bn EUR loans7bn EUR dep
16m clients208 branches5bn EUR loans8bn EUR dep
14m clients176 branches3bn EUR loans5bn EUR depBelgium
Business Unit
CzechRepublicBusiness Unit
InternationalMarkets Business Unit
6151 5047 50 40
KBC PassportWell-defined core markets
4
KBC Group NV
KBC Bank KBC Insurance
100100
KBC IFIMA
End of April 2019 the opportunity was taken to simplify the shareholdersrsquo structure of KBC AM the shares of KBC AM held by KBC Group NV (48) shifted to KBC Bank All debt obligations of KBC IFIMA are unconditionally and irrevocably guaranteed by KBC Bank
AT 1 Tier 2 Senior
Covered bond No public issuance
MREL
KBC PassportGrouprsquos legal structure and issuer of debt instruments
Retail and Wholesale EMTN
5
Contents
Roughly 40 of KBC shares are owned by a syndicate of coreshareholders providing continuity to pursue long-term strategicgoals Committed shareholders include the CeraKBC AncoraGroup (co-operative investment company) the Belgian farmersrsquoassociation (MRBB) and a group of industrialist families
The free float is held mainly by a large variety of international institutional investors
186
27
KBC Ancora
Cera74
MRBB
115
Other core
599Free float
SHAREHOLDER STRUCTURE AT END 9M201 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
6
KBC Group in a nutshell (1)
We want to be among Europersquos best performing financial institutions By achieving this KBC wants to become the reference in bank-insurance in its core marketsbull We are a leading European financial group with a focus on providing bank-insurance products and services to
retail SME and mid-cap clients in our core countries Belgium Czech Republic Slovakia Hungary Bulgaria andIreland
Diversified and strong business performancehellip geographically
bull Mature markets (BE CZ IRL) versus developing markets (SK HU BG)bull Economies of BE amp 4 CEE-countries highly oriented towards Germany while IRL is more oriented to the UK amp USbull Robust market position in all key markets amp strong trends in loan and deposit growth
hellip and from a business point of viewbull An integrated bank-insurerbull Strongly developed amp tailored AM businessbull Strong value creator with good operational
results through the cyclebull Unique selling proposition in-depth
knowledge of local markets and profound relationships with clients
bull Integrated model creates cost synergies and resultsin a complementary amp optimised product offering
bull Broadening lsquoone-stop shoprsquo offering to our clients
Diversification Synergy
Customer Centricity
53 52
47 48
20192018
KBC Group topline diversification 2018-2019 (in )
Other income Net interest income
7
High profitability
Solid capital positionhellip
FY19
Net result
2489mEUR 14
ROE
58 90
CI ratio Combined ratio
9M20
902mEUR 759 83
CET1 generationbefore any deployment
271 bps
2018
251 bps
2019
Fully loaded Basel 3 CET1 ratio of KBC Group (Danish Compromise)
1045 Overall Capital Requirement
1Q19
157
1Q20
156
9M201H19 1H209M19 FY19
154171 163 166 166
136
NSFR
138
LCR
146 142
hellip and robust liquidity positions
FY199M20
KBC Group in a nutshell (2)
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
795 theoretical regulatory minimum
8
bull On 28 July 2020 the European Central Bank extended its recommendation not to pay dividends and not to buy backshares until January 2021 In line with the recent ECB recommendation we cannot execute our usual dividend policyAs a consequence no interim dividend will be paid out in Novrsquo20
bull KBCrsquos CET1 ratio of 166 at end 9M20 represents a solid capital bufferbull 86 capital buffer compared with the current theoretical minimum capital requirement of 795 (as a result of the announced ECB and
National Bank measures which provided significant temporary relief on the minimum capital requirements)bull 61 capital buffer compared with the Overall Capital Requirement (OCR) of 1045 (which still includes the 250 capital conservation
buffer on top of the 795)bull 59 capital buffer compared with the Maximum Distributable Amount (MDA) of 1069 (given small shortfall in AT1 and T2 bucket)
bull Any MampA opportunity will be assessed subject to very strict financial and strategic criteria
We aim to be one of the better capitalised financial institutions in Europe
bull Payout ratio policy (ie dividend + AT1 coupon) of at least 50 of consolidated profitbull Interim dividend of 1 EUR per share in November of each accounting year as an advance on the total dividendbull As we find ourselves in unprecedented circumstances and as the economic impact of the coronavirus
pandemic on the economy is still very uncertain it is too early days to make statements about the capitaldistribution to shareholders as it will also depend on different regulatory measures and the stance the ECBwill take later on this yearbeginning of next year
bull We will announce an update of our capital deployment plan together with the FY20 results
Capital distribution to shareholders (usual policy)
KBC Group in a nutshell (3)
No IFRS interim profit recognition given more stringent ECB approach
9
Personalised solutionsUsing data and AI to offer proactivelycompelling relevant and personalisedfinancial solutions
Customer experienceProviding zero-hassle no-frillscustomer experience leveraging ourunique strengths on data-securityand data-privacy
Straight-through processesThis implies re-design of processesand avoiding to digitise the currentones Aim is E2E digital processes
TrustCapitalising on the trust customersplace in us today
Broad offerEmphasising our broad financial offerand ensuring these solutions are Bigtechproof (pro-active convenient amppersonalised)
Beyond bank-insuranceStaying focused on the financial wellnessof our customers and offer services tobecome embedded in our customerrsquosdaily life
Differently the next level
KBC is the reference The winning factors
10
KBC relies on its own products for Financial Servicesie Closed product architecture
KBC relies on 3rd parties for non-financial servicesKBC acts as gate-keeper in these eco-systems
KBCrsquos products and services are top-notchof high standards simple and easy to use (zero-hassle)
Requires investments in E2E processesThese processes need to be digital first
Continuouslyimproving the customer journey bymatching identifiedcustomer needs withhigh-end personalisedproduct amp services that solve these needs
Products and services are top-notch
Differently the next level
11
your digital assistant
The interaction between the customer and Kate will be triggered by data analysis (approval
granted by customer) Kate will be trained on the basis of the customerrsquos
profile preferences and activities
PERSONALISED amp DATA DRIVEN
Kate will only propose offers where sufficient added value is shown or when she can serve the
client in an important moment in the clients live
RELEVANT amp VALUABLE OFFER
Lead journeys driven by time or location are preferably taken care of by Kate as
notifications linked to a specific location or specifying moment in time are perceived as
highly personal
AT THE RIGHT TIME
We will offer the client a frictionless End2End digital process and in doing so
make bankinsurance simple and hassle free
DIGITAL FIRST amp E2E
Kate will help the client saving time andor money focusing more on the convenience
factor Kate will also serve the client regarding security and fraud
SERVING SECURE amp FRICTIONLESS
We want all our clients to meet Kate as much as possible Kate will allow us to reach out to a
sufficient volume of clients in terms of transactions and in terms of number of
targetable audience
VOLUME
lsquoNo hassle no friction zero
delayrsquo Johan Thijs
Hyper personalised and trusted financial digital assistant
12
+
+
The strong basis remains
Differently the next level
13
Bank-insurance+
Differently the next level
14
CORPORATE FINANCE
Strategy remains focused on our 6 core countries where we continue
to look for bolt-on acquisitions
Developing a FinTech network next to partnerships FinTechs can be acquired in order to support the implementation of our strategy by addressing our current white spots
Additionally we reviewed the focus of KBC Securities and are developing an
advisory services franchise adapted to our midcap corporate banking client
base in our core countries whilst allowing a limited expansion as well in our neighboring countries leveraging
on international networks
Differently the next level
Geographical playing field
FINTECHCORE COUNTRIES
15
RetailSME vs SMEcorporate same approach ndash different speeds
SMECorporate
RetailSME
PHYGITALDIGITAL
Trusted partner for financial andlsquostrategically adjacentrsquo services
The human factor remainsparamount throughaccountmanagers with data andtechnology acting as prime levers
a strong regional advisory services franchise
Strategic adjacent services ensurea complete integrated Bank-Insurance + customer journey andoffer
Trusted partner for financial and related services (Bank-Insurance+)
Intelligent digital assistant lsquoKATErsquo that pro-actively takes the hassle to fulfill financial needs away from the client
We offer convenience bysimplifying daily activities
KBC relies on its own solutionsfor financial services For non-financial related services we rely on 3rd parties
Differently the next level
16
Top Management
Priority
Centrallysteered ndash
Group wide
Built in Culture not
bolt on
Embraceinnovation
andtechnology
Compliance Future proofand scalable
Strict client acceptance(KYC) and
transaction monitoring
(KYT) processes
bull Responsible behavior top priority of CEObull Periodic reporting to highest management
levels
bull Increased focus on monitoring and constant quality control
bull First layer of defence is network
bull Advanced data driven detectionbull Advanced monitoring tools using AI
engine (algorithmic self-learning model)bull Rule-based trend-based
bull Compliance groupwide function with clear governance structure
bull Identical building blocks in different countries
bull International cooperation supported by Expertise Board
bull Constantly improving awareness and culturebull Constantly updated rules and policiesbull Career long training and e-learning more general or
dedicated to client facing staffbull Clear guidelines with regards to atypical transactions
bull Part of the integration process in MampAbull Very limited Ndeg of non-resident clientsbull Regular updates of client information
(supported by Big Data and AI)bull Behavioural analysis + use of scenario
tools
Taking AML to the next level
Differently the next level
17
From key priorities to operational targets
KEY PRIORITIE
S
No hassle no frills zero-delay customer experience
Proactive personalizedfinancial solutions via DATA
and AI
Re-design amp automation of all processes
Bank-insurance+
Digital lead management from data driven to solution
driven
Group-wide collaboration
Maximizecustomer
experience
Go forDigital first
Furtherenhance
bank-insurance
Outperformon
operationalefficiency
DATA DRIVEN
CUSTOMER NPS RANKING
STPSCORE
BANK-INSURANCE CUSTOMERS
DIGITAL SALES
Differently the next levelTranslating strategy into non-financial targets
18
Introducing 4 new operational targets (1)
Target is to remain the reference (top-2 score on group level) Based on weighted avg of ranking in six core countries
ge85 of active customers to be BI customers ge27 of active customers to be stable BI customers
BI customers have at least 1 bank + 1 insurance product of our group Stable BI customers at least 2 bank + 2 insurance products (Belgium 3+3)
Top-2 Top-2
current target 23
Customer NPS ranking
77 85
22 27
current BI target 23 currentstable BI
target 23
bank-insurance (BI) clients
Differently the next levelTranslating strategy into non-financial targets
19
Introducing 4 new operational targets (2)
STP ge60 and STP potential ge80The STP-ratio measures how many of the services that can be offered digitally are processed without any human intervention and this from the moment of interaction by a client until the final approval by KBC
STP potential measures what the STP-ratio would be if KBC would only have the digital channel in its interaction with clients for a given process or product
Digital sales ge40 of bank sales Digital sales ge25 of insurance sales
Based on weighed avg of selected core products
2260
3880
currentSTP
target 23 currentSTP
potential
target 23
STP score(straight through processing)
3140
1425
currentbank
target 23 currentinsurance
target 23
digital sales (bank insurance)
Based on analysis of core commercial products
Differently the next levelTranslating strategy into non-financial targets
20
Our sustainability strategyThe cornerstones of our sustainability strategy and our commitment to the United Nations Sustainable Development Goals
Incr
easi
ng o
ur
posi
tive
impa
ct
We are focusing on areas in which we as a bank-insurer cancreate added value financial literacy entrepreneurshipenvironmental awareness and demographic ageing andorhealth In doing so we take into account the local context ofour different home markets Furthermore we also supportsocial projects that are closely aligned with our policy
Lim
iting
our
ad
vers
e im
pact We apply strict sustainability rules to our business activities
in respect of human rights the environment business ethicsand sensitive or controversial social themes In the light ofconstantly changing societal expectations and concerns wereview and update our sustainability policies at least everytwo years
Resp
onsi
ble
beha
viou
r Responsible behaviour is especially relevant for a bank-insurer when it comes to appropriate advice and salesTherefore we pay particular attention to training (includingtesting) and awareness For that reason responsiblebehaviour is also a theme at the KBC University our seniormanagement training programme in which the theory istaught and practised using concrete situations Seniormanagers are then tasked with disseminating it throughoutthe organisation
21
bull The Group Executive Committee reports to the BOARD OF DIRECTORSon the sustainability strategy including policy on climate change
bull The INTERNAL SUSTAINABILITY BOARD (ISB) is chaired bythe Group CEO and comprises senior managers from all business unitsand core countries the Group CFO (as chairman of Sustainable FinanceSteering Committee) and the Corporate SustainabilityGeneral Manager The ISB has group-wide decision rights on allsustainability-related issues (including our climate approach) and is themain platform for driving sustainability at group level It debates andtakes decisions on any sustainability-related matter both at a strategiclevel and in more operational terms
bull The CORPORATE SUSTAINABILITY DIVISION is headed by the CorporateSustainability General Manager and reports directly to the Group CEOThe team is responsible for developing the sustainability strategy andimplementing it across the group The team monitors and informs theExecutive Committee and the Board of Directors on progress twice ayear via the KBC Sustainability Dashboard
bull A SUSTAINABLE FINANCE PROGRAMME to focus on integrating the climate approachwithin the group It oversees and supports the business as it develops its climate-resilience in line with the TCFD recommendations and the EU Action Plan
bull The programme is overseen by a SUSTAINABLE FINANCE STEERING COMMITTEEchaired by the Group CFO Via the KBC Sustainability Dashboard progress isdiscussed regularly within the Internal Sustainability Board the Executive Committeeand the Board of Directors The latter is used to evaluate the programmersquos statusreport once a year
bull In addition to our internal organisation we have set upEXTERNAL ADVISORY BOARDS to advise KBC on variousaspects of sustainability They consist of experts from theacademic world
bull An EXTERNAL SUSTAINABILITY BOARD advises theCorporate Sustainability Division on KBC sustainabilitypolicies and strategy
bull An SRI ADVISORY BOARD acts as an independent body forthe SRI funds and oversees screening of the sociallyresponsible character of the SRI funds offered by KBCAsset Management
External Sustainability Board amp SRI Advisory Board
Country Coordinator Corporate Sustainability
Sustainable finance Program
Board of Directors
Executive Committee
Senior Representatives from Finance and Risk functions
together with Sustainability Experts
KBC Group Corporate Sustainability team
Our sustainability strategySustainability embedded in our organisation
Internal Sustainability Board
22
Our ESG ratings
Latest Score(11 Nov 2020)
CDP A- Leadership
FTSE4Good 465
ISS Oekom C Prime
MSCI AAA
Sustainalytics Low Risk 4th percentile of 385 diversified banks (Nov 42020)
SampP Global -RobecoSAM
72100
Vigeo Eiris Not publicly available
Our sustainability strategyWe substantially raise the bar for our climate-related ambitions
More than doubling of SRI funds by lsquo25 SRI funds ge 50 of new fund production by lsquo21
Target raised from 50 to 65 by lsquo30
Target raised from 90 to 100 by lsquo30 Target reduction of own emissions raised from 65 to 80 by lsquo30
KBC will achieve full climate neutrality as of the end of 2021 by offsetting the balance
7 9 12 14
30
2017 20192018 targetrsquo251H20 targetrsquo302018
57
20192017 1H20
41 4457
65
Volume of SRI Funds(In billions of EUR)
Renewable energy loans(In of total energy-sector loan portfolio)
252
8634 36 26
2016 1H202017
0
2018 2019 2021
Direct coal-related finance(In millions of EUR)
Proven track record in building down direct coal exposure
Firm commitment to exit coal supporting existing clients in their transition
Green electricity(In of own electricity consumption)
78
1H20 targetrsquo30
100
2017 2018
83
2019
74 83
Reduction own GHG emissions(In compared to 2015)
50
2019 targetrsquo30
29
2017 2018
38
80
Full Exit
23
Our sustainability strategyLatest achievements
2019 achievementsbull We signed the Collective Commitment to Climate Action an
initiative of the UNEP FI (Sep 2019)bull The entire range of KBC sustainable funds is fully compliant with the
Febelfin quality standard for sustainable investment bull KBC signed the Tobacco-Free Finance Pledge drawn up by the
international organisation Tobacco Free Portfoliosbull KBC signed the lsquoOpen letter to index providers on controversial
weapons exclusionsrsquo ndash an investor initiative coordinated by Swiss Sustainable Finance
bull We continued to build on lsquoTeam Bluersquo ndash a group-wide initiative at KBC to strengthen ties and promote cooperation among all the grouprsquos staff in the different countries in which KBC operates
Sustainable finance(KBC Group in millions of euros)
2019 2018
Green finance
Renewable energy and biofuel sector 1 768 1 235
Social finance
Health care sector 5 783 5 621
Education sector 975 943
Socially Responsible Investments
SRI funds under distribution 12 016 8 970
Total 20 542 16 769
For the latest sustainability report we refer to the KBCCOM websitehttpswwwkbccomencorporate-sustainabilityreportinghtml
2020 achievementsbull Update of the KBC energy policy and implementation of biodiversity
policybull Asset management joins the Climate Action 100+bull KBC CBC and the European Investment Bank (EIB) together make
300m EUR available to Belgian SMEs for sustainable loan (focus on climate and agriculture lending)
bull Solar panels on roof KBC building (BE)
24
bull The first results of the pilot indicate that KBC appears to be less exposed to industrial groups active in the 7 high-carbon sectors (fossil fuels power automotive shipping aviation cement and steel) compared to the 16 other PACTA pilot banks
bull KBC is involved in a project to further develop the methodology used within the UNEP FI programme The goal of which is to identify the physical risks arising from certain climate scenarios for the most significantly affected sectors in our loan portfolio We have begun the analysis of physical risks for mortgage loans in Flanders and transition risks for the metals sector
Pilots
bull In 2019 we began to pilot the PCAF methodology to calculate the carbon footprint of the portfolios car lease car loans mortgage loans for residential real estate and commercial real estate
We have launched 3 pilot projects (PACTA PCAF and UNEP FI) working on a series of tools and methodologies (1) to enhance our ability to identify and to translate climate-related risks and opportunities in our strategy(2) quantify the indirect impact of our most carbon-intensive sectors and business lines
Our sustainability strategyPreparing for a science-based approach
25
Contents
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT
30 SEPTEMBER 2020
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
63
15
21
Belgium
Group Centre
Czech Republic
International Markets
2
26
Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer deposits increasedy-o-y in most of our core countries
Higher net interest income and lower net interestmargin
Slightly higher net fee and commission income
Lower net gains from financial instruments at fairvalue and lower net other income
Excellent result of non-life insurance and excellentsales of life insurance y-o-y
Strict cost management
Sharply lower net impairments on loans
Solid solvency and liquidityComparisons against the previous quarter unless otherwise stated
3Q 2020 key takeaways
Excellent net result of 697m EUR in 3Q20
ROE 7 (15 in 3Q20) Cost-income ratio 59 (adjusted for specific items)
Combined ratio 83 Credit cost ratio 061 (017 without
collective Covid-19 impairments) Common equity ratio 166 (B3 DC fully loaded)
Leverage ratio 59 (fully loaded)
NSFR 146 amp LCR 142
9M203Q20 financial performance
Net result
when evenly spreading the bank tax throughout the year 784m EUR collective Covid-19 impairments in 9M20 of which 637m EUR management overlay and 147m EUR impairments captured by the ECL models through the updated IFRS 9 macroeconomic variables
430
745612
702
-5
210
697
1Q19 2Q19 3Q19 2Q201Q204Q19 3Q20
27
Net result at KBC Group
Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-companygroup items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT
430
745
612702
-5
210
697
1Q201Q19 3Q192Q19 3Q204Q19 2Q20
NET RESULT AT KBC GROUP334
618
514586
-11
42
546
2Q201Q19 3Q203Q192Q19 1Q204Q19
68 83 79 7936
85 73
3361 66
94119 134
-20 -46 -30 -31 -50
157
-4
1Q19 2Q19 4Q193Q19
-13-20
1Q20
173
2Q20 3Q20
96
124 99143
3
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT
Amounts in m EUR
Non-Life result
Life result
Non-technical amp taxes
28
Higher net interest income and lower net interest margin
Net interest income (1122m EUR)bull Increased by 4 q-o-q and decreased by 4 y-o-ybull The q-o-q increase was driven primarily by
o the positive impact of TLTRO3 (+26m EUR q-o-q)o a positive one-off item (+26m EUR NII insurance)o higher margin on new production mortgages than the margin on the
outstanding portfolio in Belgium the Czech Republic and Slovakiao higher netted positive impact of ALM FX swapspartly offset byo the further negative impact of the CNB rate cuts (as the last CNB rate cut
from 100 to 025 happened early May 2020)o lower reinvestment yields
bull The y-o-y decrease was mainly the result of the CNB rate cuts thedepreciation of the CZK amp HUF and the negative impact of lowerreinvestment yields
Net interest margin (181)bull Decreased by 1 bp q-o-q and by 13 bps y-o-y due mainly to the CNB
rate cuts the negative impact of lower reinvestment yields and anincrease of the interest-bearing assets (denominator)
NIM
NII
992 971 977
117 114 15
2Q20
118 111124 1
114
1006
1195
2Q19
14
-1
1182
10661044
1
3Q19
112212
1057
4Q19
17
1Q19
1129
1Q20
166106
-1
131
3Q20
1132 11741083
3Q191Q19
181
2Q19 2Q204Q19 1Q20
194198
3Q20
194 194 197
182
Amounts in m EUR
NII - netted positive impact of ALM FX swapsNII - Holding-companygroup
NII - InsuranceNII - Banking
From all ALM FX swap desks NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps amp repos
Non-annualised Loans to customers excluding reverse repos (and bonds) Growth figures are excluding FX consolidation adjustments reclassifications and collective Covid-19 ECL Customer deposits including debt certificates but excluding repos Customer deposit volumes excluding debt certificates amp repos +1 q-o-q and +9 y-o-y
ORGANIC VOLUME TREND Total loans ow retail mortgages Customer deposits AuM Life reserves
Volume 158bn 69bn 212bn 204bn 27bn
Growth q-o-q +1 +2 +1 +1 0
Growth y-o-y +4 +6 +4 -4 -3
29
Slightly higher net fee and commission income
Amounts in bn EUR
AuM
210 210 212 216
193202 204
4Q191Q19 3Q202Q203Q192Q19 1Q20
264 270 275 279 270 237 245
219 230 237 243 229219 218
-73 -65 -68 -77 -71 -68 -73
3Q201Q19
410
2Q19 3Q19 4Q19 2Q201Q20
435 444 445 429388 390
Distribution Banking services Asset management services
Amounts in m EUR Net fee and commission income (390m EUR)bull Up by 1 q-o-q and down by 12 y-o-ybull Q-o-q increase was the result of the following
o Net FampC income from Asset Management Services increased by4 q-o-q as a result of higher management fees partly offset bylower entry fees from unit-linked life insurance products
o Net FampC income from banking services roughly stabilised q-o-qas higher fees from payment services and higher networkincome was offset by lower securities-related fees (after twoexceptionally strong quarters)
o Distribution costs rose by 8 q-o-q due chiefly to highercommissions paid linked to increased non-life insurance sales
bull Y-o-y decrease was mainly the result of the followingo Net FampC income from Asset Management Services fell by 11
y-o-y as a result of lower management fees and entry feeso Net FampC income from banking services decreased by 8 y-o-y
(-6 y-o-y excluding FX effect) driven mainly by lower fees frompayment services (partly due to less transaction volumes as aresult of Covid-19 partly due to the SEPA regulation) and lowerfees from credit files amp bank guarantees partly offset by highersecurities-related fees
o Distribution costs rose by 7 y-o-y due chiefly to highercommissions paid linked to banking products and increasednon-life insurance sales
Assets under management (204bn EUR)bull Increased by 1 q-o-q due mainly to a positive price effect (+1)
next to limited net inflows in mutual fund businessbull Decreased by 4 y-o-y due mainly to a negative price
effect
FampC
30
Insurance premium income (gross earned premiums) at 715m EURbull Non-life premium income (448m EUR) increased by
2 y-o-ybull Life premium income (267m EUR) down by 3 q-o-q
and by 8 y-o-y
The non-life combined ratio for 9M20amounted to an excellent 83 This is theresult of 4 y-o-y premium growth combinedwith 13 y-o-y lower technical charges in9M20 The latter was due mainly to lowernormal claims in 9M20 (especially in Motordue to Covid-19) and a negative one-off in9M19 (-16m due to reassessment on claimsprovisions) However note that 9M20 wasimpacted by a higher negative cededreinsurance result compared with 9M19
Non-life premium income up y-o-y and excellent combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUMS)
9093 92
1Q 1H 9M
83
FY
9283
90
2019 2020
415 425 440 441 443 435 448
351 317 291 364 297 276 267
805740
1Q19 2Q19 3Q19 4Q19 3Q201Q20 2Q20
766 742 731 712 715
Life premium income Non-Life premium income
Amounts in m EUR
31
Non-life and life sales up y-o-y
Sales of non-life insurance productsbull Up by only 1 y-o-y due to negative impact of Covid-19
on renewals of existing business (mainly lsquoWorkmenrsquoscompensationrsquo and lsquoGeneral third-party liabilityrsquo)
Sales of life insurance productsbull Decreased by 25 q-o-q but increased by 4 y-o-ybull The q-o-q decrease was driven by both lower sales of
unit-linked products and guaranteed interest products inBelgium
bull The y-o-y increase was driven entirely by higher sales ofunit-linked products in Belgium (due to a shift frommutual funds to unit-linked products by Private Bankingclients) only partly offset by lower sales of guaranteedinterest products (due mainly to the suspension ofuniversal single life insurance products in Belgium)
bull Sales of unit-linked products accounted for 49 of totallife insurance sales in 3Q20
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
214 198 161 160 177327
205
302 261242 311 249
235
214
4Q19 2Q201Q19 3Q202Q19 3Q19 1Q20
516459
403471
427
561
420
Guaranteed interest products Unit-linked products
534
412 411 400
567
415 416
1Q204Q192Q191Q19 2Q203Q19 3Q20
Amounts in m EUR
32
Lower FIFV and net other income
The q-o-q decline in net gains from financialinstruments at fair value was attributable mainlyto the exceptional rebound in 2Q20bull a negative change in market credit and funding value
adjustments although still a positive number (mainly asa result of changes in the underlying market value of thederivatives portfolio due to decreasing counterpartycredit spreads amp KBC funding spread partly offset bylower long-term interest rates)o FVA 24m EUR (-49m EUR q-o-q)o CVA 30m EUR (+3m EUR q-o-q)o MVA 2m EUR (+1m EUR q-o-q)
bull lower dealing room income after an excellent 2Q20result
bull a lower net result on equity instruments (insurance)
Net other income amounted to 37m EUR belowthe normal run rate of around 50m EUR perquarter due to among other things an additionalimpact of the tracker mortgage review in Ireland of-6m EUR (of which -4m related to the trackermortgage fine)
FIFV
Amounts in m EUR
-186
10062 48
-59
126
-82
-2
1Q19
-3
8
-8
4Q19
-2219
-37 -25-1
130
17
85
3Q203Q19
44
29 1028-58
1Q20
-3
2Q20
11 3155
2Q19
13
19
-2-46
-385
253
99
59
133
43 47 50 5337
4Q191Q19 2Q19 3Q19 3Q202Q201Q20
NET OTHER INCOME
Dealing room amp other incomeMVACVAFVA Net result on equity instruments (overlay insurance)
M2M ALM derivatives
33
Strict cost management
Operating expenses excluding bank taxesdecreased by 37 y-o-y in 9M20 roughly in linewith our FY20 guidance of -35 y-o-y due chieflyto the announced cost savings related to Covid-19
Operating expenses excluding bank taxesincreased by 3 q-o-q primarily as a result of
o higher staff expenses (largely due to reducedaccrued variable remuneration in 2Q20 and wageinflation in most countries despite less FTEs)
o seasonally higher marketing costs higher facilitiesand depreciation amp amortisation costs
partly offset byo seasonally lower ICT costs and professional fees
Costincome ratio (banking) adjusted for specificitems at 58 in 3Q20 and 59 YTD (58 inFY19) Costincome ratio (banking) 52 in 3Q20and 61 YTD both distorted by bank taxes andthe latter by lower FIFV
Total bank taxes (including ESRF contribution) areexpected to increase by 3 y-o-y to 504m EUR inFY20
OPERATING EXPENSES
913 957 947 994 931 877 905
382 407
1338
3Q19
2130
1Q19 2Q19 4Q19
28 51
1Q20
27
2Q20
904
3Q20
1296
988 975 1045926
Bank tax Operating expenses
See glossary (slide 87) for the exact definitionAmounts in m EUR
TOTAL Upfront Spread out over the year
3Q20 1Q20 2Q20 3Q20 1Q20 2Q20 3Q20 4Q20e
BE BU 0 289 2 0 0 0 0 0
CZ BU 0 40 0 0 0 0 0 0
Hungary 20 25 1 0 20 18 20 24
Slovakia 0 3 0 0 8 8 0 0
Bulgaria 0 17 -1 0 0 0 0 0
Ireland 1 4 -1 0 1 1 1 26
GC 0 0 0 0 0 0 0 0
TOTAL 21 377 0 0 29 27 21 50
EXPECTED BANK TAX SPREAD IN 2020
Amounts in m EUR
34
Sharply lower asset impairments
Sharply lower asset impairments q-o-qbull The q-o-q decrease of loan loss provisions was attributable
mainly too 746m EUR collective Covid-19 impairments booked in 2Q20
of which 5m was reversed in 3Q20 (small impact fromupdated IFRS 9 macroeconomic variables and managementoverlay)
o lower loan loss impairments in Belgium and the CzechRepublic (2Q20 was impacted by several corporate files inboth countries)
bull Impairment of 11m EUR on lsquootherrsquo due to several small items(of which 4m EUR ndash the largest amount ndash as the result of animpairment on a lease contract related to a HQ building inHungary)
The credit cost ratio in 9M20 amounted tobull 17 bps (12 bps in FY19) without collective Covid-19 ECLbull 61 bps with collective Covid-19 ECL
The impaired loans ratio improved to 32 18 ofwhich over 90 days past due
ASSET IMPAIRMENT
67 75 78 9957
4369
26
3Q19
41
1Q19 3Q20
36
2Q19
63
1
1Q20
25
7
20
4Q19
12
141 746
2Q20
11
-5
40
82
857
IMPAIRED LOANS RATIO
32
19
4Q19
2124
1Q19 3Q192Q19
20 19
1Q20
37
19
2Q20
18
3Q20
43
35 35 3433
CREDIT COST RATIO
FY18FY14 FY15 FY19 9M20FY16
017
023
FY17
042
009
-006 -004
012
061
of which over 90 days past dueImpaired loans ratio
Other impairments
Collective Covid-19 ECL
Impairments on financial assets at AC and FVOCI
Amounts in m EUR
CCR with collective Covid-19 ECL CCR without collective Covid-19 ECL
35
Loan loss experience at KBC
9M20CREDIT COST
RATIO
FY19CREDIT COST
RATIO
FY18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
AVERAGE lsquo99 ndashrsquo19
Belgium 059 022 009 009 012 na
Czech Republic 064 004 003 002 011 na
International Markets 079 -007 -046 -074 -016 na
Group Centre -027 -088 -083 040 067 na
Total 061 012 -004 -006 009 042
Credit cost ratio amount of losses incurred on troubled loans as a of total average outstanding loan portfolio
36
Impaired loans ratios of which over 90 days past due
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
21
1Q19 2Q19
20
4Q19 3Q20
1819
2Q201Q20
19
43
19
3Q19
37 35 35 33 34 32
24
Impaired loans ratioOf which over 90 days past due
2Q19 3Q19
11
1Q20
12
2Q20
11
3Q20
13
1Q19 4Q19
23
131415
24 2523 22 22 21
49
1Q20
48 45
3Q19
85
5176
4Q191Q19 2Q20
58
2Q19
91
53
118
98
82 78 72
3Q20
BELGIUM BU
11
2222
12
2Q20
12
3Q20
11
1Q20
24
12
1Q19 3Q19
11
26
2Q19
11
4Q19
23 23 24
KBC GROUP
37
Cover ratios
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
453
3Q191Q19
422
2Q19 2Q204Q19 1Q20 3Q20
656599
420
604 603
420 434
604
448
624
452
617
Impaired loans cover ratio
Cover ratio for loans with over 90 days past due
1Q20 3Q20
472
2Q20
660
2Q191Q19
690
3Q19 4Q19
474 475
639
481
655 655
472
669
472 492
661
421 449
1Q19 2Q19 1Q203Q19 2Q204Q19 3Q20
644
430
625
423454
642
417
634 626659
464
654
4Q191Q19 3Q201Q20 2Q202Q19 3Q19
430
607
327 352
481
321
464
327
470
324
470 487
340
465
38
NET PROFIT ndash BELGIUM NET PROFIT ndash CZECH REPUBLIC
993 932605
439335
361412
1575
2016
1432
2019
1240
2017
1450
1089
2018 2020
1344
9M20 ROAC 12
Amounts in m EUR
465 534 484584 281
131168 170
205
2018
702
2016
596
2017 2019 2020
654
789
9M20 ROAC 22NET PROFIT ndash INTERNATIONAL MARKETS
289370 440
260 113
13974
93
119
20192016
533
2017 2018
444
2020
428379
9M20 ROAC 7
Overview of contribution of business units to 9M20 result
4Q 9M 4Q 9M 4Q 9M
NET PROFIT ndash KBC GROUP
902
685462 621 702
2016
1742 19482113
2017
1787
2018 2019 2020
2427 2575 2570 2489
9M20 ROAC 11
4Q 9M
39
Balance sheet KBC Group consolidated at the end of September 2020
76
67
158
146
Total assets (EUR 321bn)
Other (incl interbank loans reverse repos property amp equipment etc)
Insurance investment contracts
Loan book (loans and advances to customers)
Investment portfolio (equity and debt securties)
Trading assets
51
2621
185
12197
Total liabilities and equity (EUR 321bn)
Deposits from customers
Technical provisions before reinsurance NL and L
Other (incl interbank deposits)
Equity (including AT1)
Other MREL instruments and debt certificates
Liabilities under insurance investment contracts
Trading liabilities
Credit quality Capital adequacy ampliquidity position
40
Y-O-Y ORGANIC VOLUME GROWTH
4
BE
Volume growth excluding FX effects divestmentsacquisitions and collective Covid-19 ECL Loans to customers excluding reverse repos (and bonds) Customer deposits including debt certificates but excluding repos Total customer loans in Bulgaria new bank portfolio +16 y-o-y while legacy -28 y-o-y
Loans DepositsRetail mortgages
35
2
8
Loans Retail mortgages
6
Deposits
2
Retail mortgages
Loans Deposits
121214
DepositsLoans Retail mortgages
6
1011
DepositsLoans
22
Retail mortgages
17
8
DepositsLoans Retail mortgages
22
-5
6
4
Loans Retail mortgages
Deposits
4
Balance sheetLoans and deposits continue to grow in all countries
CR
41
Sectorial breakdown of outstanding loan portfolio (1)(179bn EUR) of KBC Bank Consolidated
11
7
14
6
8443
3
42
Services
Automotive
Distribution
Rest
Building amp construction
Real estate
Finance amp insurance
AuthoritiesAgriculture farming fishing
Private Persons
Chemicals
16
17
45
Other sectors
Electricity
Food producers
14
14
Metals
10Machinery amp heavy equipment
07
Shipping 07
Hotels bars amp restaurants
05
Oil gas amp other fuels
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
42
Geographical breakdown of the outstanding loan portfolio (2)(179bn EUR) of KBC Bank Consolidated
541
Belgium
Ireland
163
2132
Other CEE
Czech Rep
Slovakia
58
50
Hungary
Bulgaria87
Other W-Eur 0315
North America
14
Asia
16Rest
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
43
Government bond portfolio ndash Notional value
Notional investment of 497bn EUR in government bonds (excl trading book) at end of 9M20 primarily as aresult of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-incomeinstruments
Notional value of GIIPS exposure amounted to 55bn EUR at the end of 9M20
27
18
67
12
9
4
Bulgaria3
Belgium
Czech Rep
Slovakia3
PolandHungary
3Italy
France
Other
SpainGermany
Austria Netherlands
IrelandPortugal
END OF 9M20(Notional value of 497bn EUR)
() 1 () 2
29
14
366
4
13
10
5
France
Belgium
Poland
Czech Rep
Spain
Italy
Hungary
3
SlovakiaBulgaria
Other
Germany Austria
Netherlands IrelandPortugal
END OF FY19(Notional value of 461bn EUR)
() 1 () 2
44
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
45
No IFRS interim profit recognition given the more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share The impact of transitional was limited to 2 bps at the end of 9M20 as there was no profit reservation At year-end2020 the impact of the application of the transitional measures is expected to result in a positive impact on CET1 of56 bps compared to fully loaded
Strong capital position (1)Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
1045 OCR
FY19
163
9M191H19
166
1Q19 1Q20 1H20
166157
9M20
156 154
171
The fully loaded common equity ratiostabilised q-o-q at 166 at the end of 9M20based on the Danish Compromise despite1bn EUR RWA add-ons for anticipated PDmigrations
KBCrsquos CET1 ratio of 166 at the end of9M20 represents a solid capital bufferbull 86 capital buffer compared with the current
theoretical minimum capital requirement of795 (as a result of the announced ECB andNational Bank measures which providedsignificant temporary relief on the minimumcapital requirements)
bull 61 capital buffer compared with the OverallCapital Requirement (OCR) of 1045 (which stillincludes the 250 capital conservation buffer ontop of the 795)
bull 59 capital buffer compared with theMaximum Distributable Amount (MDA) of1069 (given small shortfall in AT1 and T2bucket)
The difference between fully loaded CET1ratio and the IFRS9 transitional CET1 ratioonly amounted to 2 bps in 3Q20
795 theoretical regulatory minimum
1069 MDA
Total distributable items (under Belgian GAAP) KBC Group 106bn EUR at 9M 2020 of whichbull available reserves 949mbull accumulated profits 8 192m
46
Strong capital position (2)
Fully loaded Basel 3 total capital ratio (Danish Compromise)
157 CET1
18921 T2
16 AT1
1Q19 1H19
21 T2
156 CET1 166 CET1
16 AT1 15 AT1
1Q209M19
154 CET 1
19 T2
15 AT1
206
20 T2
171 CET1
FY19
19 T2192
15 AT1
163 CET1
18 T2
15 AT115 AT1
1H20
18 T2
9M20
193 197 198 198
166 CET1
The fully loaded total capital ratiostabilised q-o-q at 198 at the end of9M20
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
47
Fully loaded Basel 3 leverage ratio and Solvency II ratio
55
1Q19 1H19 9M19 FY19 1Q20
52
1H20 9M20
51 50 52 48 48
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
1H191Q19
65
9M19 FY19
60
9M201H201Q20
61 6068
60 59
Solvency II ratio
1H20 9M20
Solvency II ratio 198 196
The q-o-q delta in the Solvency II ratio was mainlydriven by a lower compensating effect of the volatilityadjustment
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over
2019 profit of 25 EUR per share
No IFRS interim profit recognition given more stringent ECB approach Taking into account the adjustment of the final dividend over 2019
48
Strong customer funding base with liquidity ratiosremaining very strong
KBC Bank continues to have a strong retailmid-cap deposit base in its core markets ndash resulting in a stable funding mix with a significant portion of the fundingattracted from core customer segments and markets
KBC Bank participated to the TLTRO III transaction for an amount of 195bn EUR in June (bringing the total TLTRO exposure to 219bn EUR) which significantlyincreased its funding mix proportion and is reflected in the lsquoInterbank Fundingrsquo item below
69 customer
driven
Net Stable Funding Ratio (NSFR) is based on KBC Bankrsquos interpretation of the proposal of CRR amendment Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements From EOY2017 onwards KBCBank discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure
Ratios FY19 9M20 Regulatory requirement
NSFR 136 146 ge100
LCR 138 142 ge100
NSFR is at 146 and LCR is at 142 by the end of 9M20bull Both ratios were well above the regulatory requirement of 100 due
to a strong growth in customer funding and the participation toTLTRO III
9
6969
9
73
2
63
8
719
10
2
71
FY13
18
13
93
FY18
7
FY14
18
68
86
7
11
3
71
FY15
10
FY19
48
FY16
8
62
48
9
63
1
FY17
8 8
72
7
82
9M20
Interbank FundingSecured Funding
Total Equity
Debt issues placed at institutional relationsCertificates of depositFunding from Customers
Government and PSE
Mid-cap
Retail and SME
5
19
76
133 766 139 560 143 690 155 774 163 824 176 045 189 453
FY14 FY15 FY16 FY17 FY18 FY19 3Q20
Funding from customers (m EUR) of KBC Banking Group
49
Upcoming mid-term funding maturities
In December 2019 KBC Bank NV decided to early repay theremaining part of the TLTRO II (ie 2545bn EUR) and entered intothe TLTRO III for 25bn EUR
In May 2020 KBC Bank issued a covered bond for an amount of1bn EUR with a 55-year maturity
In June 2020 KBC Group issued its second Green seniorbenchmark for an amount of 500m EUR with a 7-year maturitywith call date after 6 years
In June 2020 KBC Bank participated in TLTRO III for an amount of195bn EUR which brings the total TLTRO exposure to 219bn EURmaturing in 2023
In September 2020 KBC Group issued a senior benchmark for anamount of 750m EUR with a 6-year maturity with call date after 5years
KBC Bank has 6 solid sources of long-term fundingbull Retail term depositsbull Retail EMTNbull Public benchmark transactionsbull Covered bondsbull Structured notes and covered bonds using the private
placement formatbull Senior unsecured T1 and T2 capital instruments issued at KBC
Group level and down-streamed to KBC Bank
38
2816
36
01
06
16
09 0908
0503 03
0
1000
2000
3000
4000
5000
6000
7000
2020 2021 2022 2023 2024 2025 2026 2027 gt= 2028
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond
Total outstanding = 19bn EUR
(Including of KBC Grouprsquos balance sheet)
50
KBC has strong buffers cushioning Sr debt at all levels (9M 2020)
KBC GroupSenior6 518
Tier 2 2 179
Additional Tier 11 500
CET1 (transitional)16 606
KBC Bank
Tier 2 1 680
Additional Tier 11 500
CET1 (transitional)12 872
176
KBC Insurance
Tier 2 500
Parent shareholders equity3 578
Buffer for Sr level 226bn EUR
Buffer for Sr level 203 bn EUR
Legacy T2 issued by KBC Bank will disappear over time
nominal amounts in million EUR
Subordinated on loan by KBC Group6 518
51
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at KBC Group level with bail-in as thepreferred resolution tool
SRBrsquos currently applicable approach to MREL is defined in the lsquo2018 SRB Policy for the 2nd wave of resolution plansrsquopublished on 16 January 2019 which is based on the current legal framework (BRRD 1)
The actual binding target is 967 as of TLOF as from 31-12-2021
TLOF Total Liabilities and Own FundsLAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR Combined Buffer Requirement = Conservation Buffer (25) + O-SII buffer (15) + countercyclical buffer (015 in previous target 035 in revised target)
KBC complies with resolution requirementsMREL target applicable as from 31-12-2021
LAA
RCA
MCC
8 P1
175 P2R
435 CBR
8 P1
175 P2R
31 (CBR ndash 125)
100 RWA
95 RWA
= 263as of RWA
MREL target = 967 as of TLOF
x RWATLOF balance
31122017=
967 as of TLOF
Actual in of TLOF
23
59
06
94
05
3Q20
HoldCo senior
T2 part of own fundsAT1
CET1
52
Available MREL as a of TLOF
1Q201Q19 1H19 9M19 FY19
93104
9M201H20
96 98 10093 94
Available MREL () as a of TLOF
Hybrid approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share As of 1H20 MREL ratio includes the impact of IFRS9 transitional measures
The decrease of MREL as a of TLOF asof 1H20 can be fully explained by theparticipation in TLTRO III for an amountof 195bn EUR in June 2020 Excludingthis MREL would have amounted to101 at the end of 9M20
53
Latest credit ratings
SampPMoodyrsquos Fitch
Gro
upBa
nkIn
sura
nce
Senior UnsecuredTier IIAdditional Tier IShort-term P-2 A-2 F1Outlook Stable Negative Negative
Baa1 A- A- BBB BBB+
Ba1 BB+ BBB-
Senior Unsecured
Short-term P-1 A-1 F1Outlook Stable Stable Negative
A1 A+ A+Tier II
Covered Bonds Aaa - AAA
-
Financial Strength RatingIssuer Credit Rating
- A -- A -
BBB
Outlook - Negative -
-
Latest updates triggered by the COVID-19 pandemicbull 23 Apr 2020 SampP revised KBC Group and KBC Insurance outlook to negative The outlook for KBC Bank remains Stable because of the
substantial buffers of already existing bail-in-able debtbull 30 Mar 2020 Fitch revised KBC Group and KBC Bank outlook to negative Next to that driven by methodology changes Fitch
downgraded Tier 2 debt by one notch to lsquoBBB+ and upgraded AT1 debt by one notch to lsquoBBB-rsquo
54
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
55
COVID-19 (19)
Latest status of government amp sector measures in each of our core countries
Opt-in 3 months for consumer finance 6-9months for mortgages and non-retail loans(until 31 Oct 2020 and can be extended to 31Dec 2020)bull For private persons deferral of principal
and interest payments while only deferralof principal payments for non-retail clients
bull Interest is accrued over the deferralperiod apart from families with netincome of less than 1700 EUR For thelatter group this results in a modificationloss for the bank (-11m EUR booked in 2Q)
Belgium
Defe
rral
of p
aym
ents
Guar
ante
e Sc
hem
e amp
liq
uidi
ty a
ssist
ance
HungaryOpt-in 3 or 6 monthsApplication period finished on 30 Sep 2020 howeverend of Oct 2020 all deferrals expiredbull Applicable for retail and non-retail clientsbull For private persons and entrepreneurs deferral of
principal and interest payments while onlydeferral of principal payments for non-retail clients
bull Interest is accrued over the deferral period butmust be paid in the final instalment resulting in amodification loss for the bank (-5m EUR booked in2Q)
bull For consumer loans the interest during thedeferral period may not exceed the 2-week reporate + 8
Czech Republic
Opt-out a blanket moratorium originally until 31 Dec 2020 Extension of the deferral until 30 JUN 2021 but with certain eligibility criteria (no detailed legislation available yet for non-retail clients)bull Applicable for retail and non-retail clientsbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period
but unpaid interest cannot be capitalisedand must be collected on a linear basisduring the remaining (extended) lifetimeThis results in a modification loss for thebank (-18m EUR booked in 1Q revised to -11mEUR in 2Q based on the actual opt-out ratio)
bull A state guarantee scheme of up to 40bn EURto cover losses incurred on future non-retailloans granted before 31 Dec 2020 to viablecompanies with a tenor of maximum 12months and a maximum interest rate of125 Guarantee covers 50 of losses above3 of total credit losses and 80 above 5of losses
bull As of 3Q a revised state guarantee schemeof up to 10bn EUR has been offered to coverlosses on future SME loans granted before 31Dec 2020 with a tenor between 1 and 3years and with a maximum interest rate of2 Guarantee covers 80 of all losses
bull The Czech-Moravian Guarantee and DevelopmentBank (CZMRB) launched several guaranteeprograms (COVID II COVID II Praha COVID III) forworking capital loans provided by commercial banksto non-retail clients The loan amount isguaranteed up to 80 or 90 of the loan amountInterest on these loans is subsidised up to 25(COVID II)
bull The Export Guarantee and Insurance Corporation(EGAP) under its COVID Plus program offersguarantees on loans provided by commercial banksEGAP guarantees 70 to 80 of the loan amountdepending on the rating of the debtor The programis aimed at companies in which exports accountedfor more than 20 of turnover in 2019
bull A guarantee scheme is provided byGarantiqa and the Hungarian DevelopmentBank These state guarantees can cover upto 90 of the loans with a maximum tenorof 6 years
bull Funding for growth scheme (launched byMNB) a framework amount of 42bn EURfor SMEs that can receive loans with a 20-year tenor and a maximum interest rate of25
bull Annual interest rate on personal loansgranted by commercial banks may notexceed the central bank base rate by morethan 5pp (until 31 Dec 2020)
56
Opt-in 9 months or 6 months (for leases)Application period is still running (but most will end in 1Q 2021)bull Applicable for retail customers SMEs and
entrepreneursbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but
the customer has the option of paying allinterest at once after the moratorium or payingit on a linear basis The latter option wouldresult in an immaterial modification loss for thebank
Slovakia
Defe
rral
of p
aym
ents
Gua
rant
ee S
chem
e amp
liq
uidi
ty a
ssist
ance
IrelandBulgaria Opt-in 3 to 6 months Application period expired on 30 Sep 2020bull Applicable for mortgage loans consumer
finance loans and business banking loanswith a repayment schedule
bull Deferral of principal and interest paymentsfor up to 6 months (with review after 3months) for mortgages amp consumer financeand 3 months for business banking
bull Option for customers to extend their loanterm by up to 6 months to match thepayment holiday
bull Interest is accrued over the deferral period
bull Anti-Corona Guarantee program offered by theSlovak Investment Holding (SIH) and aimed atSMEs consists of two components (i) an 80state guarantee with a 50 portfolio cap and (ii)the interest rate subsidy of up to 4 pa
bull In addition financial aid in the form of the Stateguarantee schemes with guaranteed fee subsidycan be provided by the (i) Slovak InvestmentHolding (guarantee of up to 90 for loans lt 2mEUR) and the (ii) Export-Import Bank of SR(guarantee of up to 80 for loans of 2-20m EUR)No portfolio cap is applied
COVID-19 (29)
Latest status of government amp sector measures in each of our core countries
bull 04bn EUR of state guaranteesprovided by the BulgarianDevelopment Bank to commercialbanks Of this amount 01bn EUR isused to guarantee 100 of consumerloans while 03bn EUR is planned to beused to guarantee 80 of non-retailloans
bull The Irish authorities put substantial reliefmeasures in place amongst other measuresvia the SBCI KBC Bank Ireland is mainlyfocused on individual customers thereforethe relief programs for business customersare less relevant
Opt-in 6 months (until 31 Mar 2021 at the latest)Application period expired on 30 Sep 2020bull Applicable for retail and non-retail
customersbull Deferral of principal with or without
deferral of interest paymentsbull In the case of principal deferral only the
tenor is extended by 6 monthsbull Interest is accrued over the deferral
period and is payable in 12 months(consumer and non-retail) or 60 months(mortgages) in equal instalments
57
COVID-19 (39)
Overview of EBA compliant payment holidays and public Covid-19 guarantee schemes
Payment holidays ndash by country
Hungary opt-out a blanket moratorium applicable for retail and non-retail loans bull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but unpaid interest cannot be capitalised
and must be collected on a linear basis during the remaining (extended) lifetime
Payment holidays excl Hungary ndash by segment
By the end of September 2020bull The volume of granted loans with payment holidays according to the EBA definitions amounted
to 137bn EUR or 9 of total loan book
bull Approx 1bn EUR of moratoria already expired of which 97 have resumed paymentsbull Government guaranteed loans granted (under Covid-19 scheme) for 583m EUR
Loans and advances under public Covid-19 guarantee schemes
Payment holidays ndash by segment
bull Loans to customers excluding reverse repos (and bonds)
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichBelgium 77 25 7Czech Republic 21 22 7Hungary (opt-out) 17 128 37Slovakia 08 12 10Bulgaria 02 5 7Ireland 12 6 12
Status 30 Sep 2020 Loans grantedEUR m
obligorsk
KBC Group 583 7of whichSME 261Corporate 309
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichMortgages 45 7SME 43 13Corporate 42 10
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group (excl HU) 120 70 8of which
Mortgages 40 6SME 36 11Corporate 39 9
58
COVID-19 (49)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
OPTIMISTIC SCENARIO BASE-CASE SCENARIO PESSIMISTICSCENARIO
Virus spread and impact sufficiently under control thanks to continued social distancing and other precautionary measures avoiding the need for another lockdown period
Virus spread and impact sufficiently under control thanks to continued and possibly intensified social distancing and other precautionary measures avoiding the need for another full lockdown period
Virus reappears and continues to weigh on society and economy necessitating on-off lockdown periods that have a significant impact on economic activity
Steep and steady recovery from 3Q20 onwards with a fast return to pre-Covid-19 levels of activity
More moderate but still steady recovery from 3Q20 onwards with a recovery to pre-Covid-19 levels of activity by the end of 2023
Another (series of) shock(s) takes place leading to an interrupted and unsteady path to recovery
Sharp short V-pattern U-pattern More L-like pattern with right leg only slowly increasing
The Covid-19 pandemic continues to be the maindriver of the global economy The epidemiologicaldevelopments are far from good The number ofnew Covid-19 cases are rapidly increasing in manycountries Because of this uncertainty we continueworking with three alternative scenarios a base-case scenario a more optimistic scenario and amore pessimistic scenario
bull The definition of each scenario reflects the latestvirus-related and economic developments while wecontinue to assign the same probabilities as inprevious quarter 45 for the base-case 40 for thepessimistic and 15 for the optimistic scenario
bull The macroeconomic information is based on the economic situation in September 2020 and hence does not yet reflect the official macroeconomic figures for 3Q20 as reported by different authorities
Real GDP growth
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Euro area -67 -83 -116 87 52 -10 29 20 22 Belgium -61 -90 -111 91 51 -11 29 20 20 Czech Republic -61 -70 -85 62 47 13 28 30 33 Hungary -30 -62 -120 40 50 40 35 35 35Slovakia -65 -80 -95 66 61 16 45 35 38 Bulgaria -40 -80 -120 40 50 40 30 30 30 Ireland 00 -50 -100 50 40 10 30 35 25
2020 2021 2022 bull For the euro area we haverevised GDP growth for2020 upwards to -83and mechanically thisless negative outcome for2020 translates into adownward revision ofgrowth to 52 for 2021
59
COVID-19 (59)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
Unemployment rate
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 66 72 78 70 76 110 60 69 95Czech Republic 43 51 61 42 54 73 35 48 68 Hungary 48 61 75 42 56 75 40 48 65 Slovakia 75 90 100 80 100 120 70 80 105 Bulgaria 60 80 110 43 100 130 42 70 120 Ireland 80 110 200 60 70 160 50 60 120
2020 2021 2022
House-price index
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 15 -05 -15 10 -30 -60 25 10 -20Czech Republic 53 48 35 10 -08 -40 41 20 -08 Hungary 40 20 -75 10 -10 -50 31 20 -10 Slovakia 65 50 20 10 -10 -50 30 20 -05 Bulgaria 05 -20 -30 10 -10 10 30 30 15Ireland -20 -70 -120 40 35 0 40 35 10
2020 2021 2022
60
COVID-19 (69)
Steady staging of loan portfolio
bull As disclosed during previous quarters our Expected Credit Loss (ECL)models were not able to adequately reflect all the specificities of theCovid-19 crisis or the various government measures implemented inthe different countries to support households SMEs and Corporatesthrough this crisis Therefore an expert-based calculation at portfoliolevel is required via a management overlay
bull In the first quarter this calculation was limited to a certain number of(sub)sectors In the second quarter driven by significant uncertaintiesaround the Covid-19 crisis the scope of the management overlay wasexpanded to include all sectors of our corporate and SME portfolio aswell as our retail portfolio
bull To be consistent with the second quarter we recalculated the Covid-19ECL based on the same methodology used on the performing and non-performing portfolio by the end of September 2020 but including thelatest economic scenarios
bull Until now only minor PD shifts have been observed in our portfoliowhich is reflected in stable staging percentages Note that in line withECBESMAEBA guidance any general government measure grantedbefore the end of September 2020 has not led to automatic staging
Total loan portfolio by IFRS 9 ECL stage
Loan portfolio
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
852
FY19
113 10735
860 854
33
1Q20
854
11334
1H20
Stage 3 11432
9M20
Stage 1
Stage 2
(in billions of EUR) YE19 1Q20 1H20 9M20Portfolio outstanding 175 180 179 179 Retail 42 40 41 42 of which mortgages 38 37 38 39 of which consumer finance 3 3 3 3 SME 22 21 21 22 Corporate 37 39 38 37
61
78
99
-2
234
43
150
-3
147
596
57
637
3Q20
2Q20
1Q20
9M20
121
845
52
1 018
Management overlay
Impairments on financial assets at AC and at FVOCI without any COVID-19 impactCovid-19 impact already captured by ECL models
Impairment on financial assets at AC and at FVOCI
Amounts in m EUR
Collective Covid-19 ECL = 784m
COVID-19 (79)
Impact of the collective Covid-19 ECL after 9M
Credit Cost (annualized)
FY19 3M20 1H20 9M20
Without collective COVID-19 ECL 012 017 020 017
With collective COVID-19 ECL 027 064 061
Collective Covid-19 ECL not annualized
bull The updated assessment of the impact of Covid-19 on theperforming and non-performing portfolio after 9M20 (see detailsin following slides) resulted in a total collective Covid-19 ECL of784m EUR (q-o-q release of 5m EUR) of which
bull a total management overlay of 637m EUR with a -2mEUR release being booked in 3Q20
bull the ECL models captured an impact of 147m EUR after9M through the updated macroeconomic variables usedin the calculation resulting in a q-o-q release of -3m EUR
bull The total collective Covid-19 ECL of 784m EUR in 9M20 consistsof 6 stage 1 85 stage 2 and 9 stage 3 impairments
bull Including the collective Covid-19 ECL the Credit Cost Ratioamounted to 061 in 9M20
bull We are reiterating our estimate for FY20 impairments (onfinancial assets at AC and at FVOCI) of roughly 11bn EUR as aresult of the coronavirus pandemic Depending on a number ofevents such as the length and depth of the economic downturnthe significant number of government measures in each of ourcore countries and the unknown number of customers who willavail themselves of these mitigating measures we estimate theFY20 impairments to range between roughly 08bn EUR(optimistic scenario) and roughly 16bn EUR (pessimisticscenario)
62
COVID-19 (89)
Collective Covid-19 ECL in more detail no major change in the classification of sector risk
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
SME amp Corporate loan portfolio of 104bn EUR broken down by sector sensitivity to Covid-19
36
23
41
Medium
Low
High
10
47
35
29
33
1219
12Building amp construction
33
9M20
Commercial real-estate
Distribution(retail amp wholesale)
Automotive
Services(entertainement leisure amp retirement homes)
MetalsShipping (transportation)Hotels bars amp restaurants
Sum of other sectors lt 1 (incl Aviation sector) No major change in the sector split between high-medium-low risk compared to the previous quarterOnly minor reallocations of underlying activities fromlsquohighrsquo to lsquomediumrsquo or even to lsquolowrsquo risk Also very limitedshifts from lsquomediumrsquo to lsquohighrsquo risk situated mainly in thefollowing sectors
Distribution A minor share of activities related to the wholesale distribution of apparel was moved into the lsquohigh riskrsquo category adding to the already designated retail part (mainly retail fashion)
Services Increase in lsquohigh riskrsquo category driven by retirement homes mainly in Belgium
Metals The activity related to the manufacture of metal structures linked to the construction of non-residential buildings was shifted into the lsquohigh riskrsquo category
Building amp construction
In the previous quarter the entire portfolio was allocated to lsquomedium riskrsquo dueto the limited lockdown interruption as this was one of the first sectors torestart In addition the temporary unemployment cover provided by the Belgiangovernment tempered the impact Now in the third quarter a limited share ofactivities related to the construction of non- residential buildings was shifted intothe lsquohigh riskrsquo category
Aviation sectorAs in the second quarter both sectors categorised as lsquohigh riskrsquo but with a limited share of 03 both
Exploration and production of oil gas amp other fuels
Composition of lsquoother sectors lt1rsquo in more detail
63
COVID-19 (99)
Collective Covid-19 ECL in more detail q-o-q release of 5m EUR
Collective Covid-19 ECL per country
9M20Optimistic Base Pessimistic Probability
EUR m 15 45 40 weightedKBC Group 471 621 908 714 70 784 -5 746 43By country
Belgium 300 366 450 390 20 410 -3 378 35Czech Republic 95 143 198 158 9 167 9 152 6Slovakia 23 30 50 37 0 37 -3 39 1Hungary 24 38 82 54 0 54 -1 54 1Bulgaria 7 16 25 18 5 23 -5 28 naIreland 22 28 103 57 36 93 -2 95 na
2Q20 1Q203Q20Performing portfolio impact Non-
Performing portfolio
Total9M20
4
KBC Group NV
KBC Bank KBC Insurance
100100
KBC IFIMA
End of April 2019 the opportunity was taken to simplify the shareholdersrsquo structure of KBC AM the shares of KBC AM held by KBC Group NV (48) shifted to KBC Bank All debt obligations of KBC IFIMA are unconditionally and irrevocably guaranteed by KBC Bank
AT 1 Tier 2 Senior
Covered bond No public issuance
MREL
KBC PassportGrouprsquos legal structure and issuer of debt instruments
Retail and Wholesale EMTN
5
Contents
Roughly 40 of KBC shares are owned by a syndicate of coreshareholders providing continuity to pursue long-term strategicgoals Committed shareholders include the CeraKBC AncoraGroup (co-operative investment company) the Belgian farmersrsquoassociation (MRBB) and a group of industrialist families
The free float is held mainly by a large variety of international institutional investors
186
27
KBC Ancora
Cera74
MRBB
115
Other core
599Free float
SHAREHOLDER STRUCTURE AT END 9M201 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
6
KBC Group in a nutshell (1)
We want to be among Europersquos best performing financial institutions By achieving this KBC wants to become the reference in bank-insurance in its core marketsbull We are a leading European financial group with a focus on providing bank-insurance products and services to
retail SME and mid-cap clients in our core countries Belgium Czech Republic Slovakia Hungary Bulgaria andIreland
Diversified and strong business performancehellip geographically
bull Mature markets (BE CZ IRL) versus developing markets (SK HU BG)bull Economies of BE amp 4 CEE-countries highly oriented towards Germany while IRL is more oriented to the UK amp USbull Robust market position in all key markets amp strong trends in loan and deposit growth
hellip and from a business point of viewbull An integrated bank-insurerbull Strongly developed amp tailored AM businessbull Strong value creator with good operational
results through the cyclebull Unique selling proposition in-depth
knowledge of local markets and profound relationships with clients
bull Integrated model creates cost synergies and resultsin a complementary amp optimised product offering
bull Broadening lsquoone-stop shoprsquo offering to our clients
Diversification Synergy
Customer Centricity
53 52
47 48
20192018
KBC Group topline diversification 2018-2019 (in )
Other income Net interest income
7
High profitability
Solid capital positionhellip
FY19
Net result
2489mEUR 14
ROE
58 90
CI ratio Combined ratio
9M20
902mEUR 759 83
CET1 generationbefore any deployment
271 bps
2018
251 bps
2019
Fully loaded Basel 3 CET1 ratio of KBC Group (Danish Compromise)
1045 Overall Capital Requirement
1Q19
157
1Q20
156
9M201H19 1H209M19 FY19
154171 163 166 166
136
NSFR
138
LCR
146 142
hellip and robust liquidity positions
FY199M20
KBC Group in a nutshell (2)
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
795 theoretical regulatory minimum
8
bull On 28 July 2020 the European Central Bank extended its recommendation not to pay dividends and not to buy backshares until January 2021 In line with the recent ECB recommendation we cannot execute our usual dividend policyAs a consequence no interim dividend will be paid out in Novrsquo20
bull KBCrsquos CET1 ratio of 166 at end 9M20 represents a solid capital bufferbull 86 capital buffer compared with the current theoretical minimum capital requirement of 795 (as a result of the announced ECB and
National Bank measures which provided significant temporary relief on the minimum capital requirements)bull 61 capital buffer compared with the Overall Capital Requirement (OCR) of 1045 (which still includes the 250 capital conservation
buffer on top of the 795)bull 59 capital buffer compared with the Maximum Distributable Amount (MDA) of 1069 (given small shortfall in AT1 and T2 bucket)
bull Any MampA opportunity will be assessed subject to very strict financial and strategic criteria
We aim to be one of the better capitalised financial institutions in Europe
bull Payout ratio policy (ie dividend + AT1 coupon) of at least 50 of consolidated profitbull Interim dividend of 1 EUR per share in November of each accounting year as an advance on the total dividendbull As we find ourselves in unprecedented circumstances and as the economic impact of the coronavirus
pandemic on the economy is still very uncertain it is too early days to make statements about the capitaldistribution to shareholders as it will also depend on different regulatory measures and the stance the ECBwill take later on this yearbeginning of next year
bull We will announce an update of our capital deployment plan together with the FY20 results
Capital distribution to shareholders (usual policy)
KBC Group in a nutshell (3)
No IFRS interim profit recognition given more stringent ECB approach
9
Personalised solutionsUsing data and AI to offer proactivelycompelling relevant and personalisedfinancial solutions
Customer experienceProviding zero-hassle no-frillscustomer experience leveraging ourunique strengths on data-securityand data-privacy
Straight-through processesThis implies re-design of processesand avoiding to digitise the currentones Aim is E2E digital processes
TrustCapitalising on the trust customersplace in us today
Broad offerEmphasising our broad financial offerand ensuring these solutions are Bigtechproof (pro-active convenient amppersonalised)
Beyond bank-insuranceStaying focused on the financial wellnessof our customers and offer services tobecome embedded in our customerrsquosdaily life
Differently the next level
KBC is the reference The winning factors
10
KBC relies on its own products for Financial Servicesie Closed product architecture
KBC relies on 3rd parties for non-financial servicesKBC acts as gate-keeper in these eco-systems
KBCrsquos products and services are top-notchof high standards simple and easy to use (zero-hassle)
Requires investments in E2E processesThese processes need to be digital first
Continuouslyimproving the customer journey bymatching identifiedcustomer needs withhigh-end personalisedproduct amp services that solve these needs
Products and services are top-notch
Differently the next level
11
your digital assistant
The interaction between the customer and Kate will be triggered by data analysis (approval
granted by customer) Kate will be trained on the basis of the customerrsquos
profile preferences and activities
PERSONALISED amp DATA DRIVEN
Kate will only propose offers where sufficient added value is shown or when she can serve the
client in an important moment in the clients live
RELEVANT amp VALUABLE OFFER
Lead journeys driven by time or location are preferably taken care of by Kate as
notifications linked to a specific location or specifying moment in time are perceived as
highly personal
AT THE RIGHT TIME
We will offer the client a frictionless End2End digital process and in doing so
make bankinsurance simple and hassle free
DIGITAL FIRST amp E2E
Kate will help the client saving time andor money focusing more on the convenience
factor Kate will also serve the client regarding security and fraud
SERVING SECURE amp FRICTIONLESS
We want all our clients to meet Kate as much as possible Kate will allow us to reach out to a
sufficient volume of clients in terms of transactions and in terms of number of
targetable audience
VOLUME
lsquoNo hassle no friction zero
delayrsquo Johan Thijs
Hyper personalised and trusted financial digital assistant
12
+
+
The strong basis remains
Differently the next level
13
Bank-insurance+
Differently the next level
14
CORPORATE FINANCE
Strategy remains focused on our 6 core countries where we continue
to look for bolt-on acquisitions
Developing a FinTech network next to partnerships FinTechs can be acquired in order to support the implementation of our strategy by addressing our current white spots
Additionally we reviewed the focus of KBC Securities and are developing an
advisory services franchise adapted to our midcap corporate banking client
base in our core countries whilst allowing a limited expansion as well in our neighboring countries leveraging
on international networks
Differently the next level
Geographical playing field
FINTECHCORE COUNTRIES
15
RetailSME vs SMEcorporate same approach ndash different speeds
SMECorporate
RetailSME
PHYGITALDIGITAL
Trusted partner for financial andlsquostrategically adjacentrsquo services
The human factor remainsparamount throughaccountmanagers with data andtechnology acting as prime levers
a strong regional advisory services franchise
Strategic adjacent services ensurea complete integrated Bank-Insurance + customer journey andoffer
Trusted partner for financial and related services (Bank-Insurance+)
Intelligent digital assistant lsquoKATErsquo that pro-actively takes the hassle to fulfill financial needs away from the client
We offer convenience bysimplifying daily activities
KBC relies on its own solutionsfor financial services For non-financial related services we rely on 3rd parties
Differently the next level
16
Top Management
Priority
Centrallysteered ndash
Group wide
Built in Culture not
bolt on
Embraceinnovation
andtechnology
Compliance Future proofand scalable
Strict client acceptance(KYC) and
transaction monitoring
(KYT) processes
bull Responsible behavior top priority of CEObull Periodic reporting to highest management
levels
bull Increased focus on monitoring and constant quality control
bull First layer of defence is network
bull Advanced data driven detectionbull Advanced monitoring tools using AI
engine (algorithmic self-learning model)bull Rule-based trend-based
bull Compliance groupwide function with clear governance structure
bull Identical building blocks in different countries
bull International cooperation supported by Expertise Board
bull Constantly improving awareness and culturebull Constantly updated rules and policiesbull Career long training and e-learning more general or
dedicated to client facing staffbull Clear guidelines with regards to atypical transactions
bull Part of the integration process in MampAbull Very limited Ndeg of non-resident clientsbull Regular updates of client information
(supported by Big Data and AI)bull Behavioural analysis + use of scenario
tools
Taking AML to the next level
Differently the next level
17
From key priorities to operational targets
KEY PRIORITIE
S
No hassle no frills zero-delay customer experience
Proactive personalizedfinancial solutions via DATA
and AI
Re-design amp automation of all processes
Bank-insurance+
Digital lead management from data driven to solution
driven
Group-wide collaboration
Maximizecustomer
experience
Go forDigital first
Furtherenhance
bank-insurance
Outperformon
operationalefficiency
DATA DRIVEN
CUSTOMER NPS RANKING
STPSCORE
BANK-INSURANCE CUSTOMERS
DIGITAL SALES
Differently the next levelTranslating strategy into non-financial targets
18
Introducing 4 new operational targets (1)
Target is to remain the reference (top-2 score on group level) Based on weighted avg of ranking in six core countries
ge85 of active customers to be BI customers ge27 of active customers to be stable BI customers
BI customers have at least 1 bank + 1 insurance product of our group Stable BI customers at least 2 bank + 2 insurance products (Belgium 3+3)
Top-2 Top-2
current target 23
Customer NPS ranking
77 85
22 27
current BI target 23 currentstable BI
target 23
bank-insurance (BI) clients
Differently the next levelTranslating strategy into non-financial targets
19
Introducing 4 new operational targets (2)
STP ge60 and STP potential ge80The STP-ratio measures how many of the services that can be offered digitally are processed without any human intervention and this from the moment of interaction by a client until the final approval by KBC
STP potential measures what the STP-ratio would be if KBC would only have the digital channel in its interaction with clients for a given process or product
Digital sales ge40 of bank sales Digital sales ge25 of insurance sales
Based on weighed avg of selected core products
2260
3880
currentSTP
target 23 currentSTP
potential
target 23
STP score(straight through processing)
3140
1425
currentbank
target 23 currentinsurance
target 23
digital sales (bank insurance)
Based on analysis of core commercial products
Differently the next levelTranslating strategy into non-financial targets
20
Our sustainability strategyThe cornerstones of our sustainability strategy and our commitment to the United Nations Sustainable Development Goals
Incr
easi
ng o
ur
posi
tive
impa
ct
We are focusing on areas in which we as a bank-insurer cancreate added value financial literacy entrepreneurshipenvironmental awareness and demographic ageing andorhealth In doing so we take into account the local context ofour different home markets Furthermore we also supportsocial projects that are closely aligned with our policy
Lim
iting
our
ad
vers
e im
pact We apply strict sustainability rules to our business activities
in respect of human rights the environment business ethicsand sensitive or controversial social themes In the light ofconstantly changing societal expectations and concerns wereview and update our sustainability policies at least everytwo years
Resp
onsi
ble
beha
viou
r Responsible behaviour is especially relevant for a bank-insurer when it comes to appropriate advice and salesTherefore we pay particular attention to training (includingtesting) and awareness For that reason responsiblebehaviour is also a theme at the KBC University our seniormanagement training programme in which the theory istaught and practised using concrete situations Seniormanagers are then tasked with disseminating it throughoutthe organisation
21
bull The Group Executive Committee reports to the BOARD OF DIRECTORSon the sustainability strategy including policy on climate change
bull The INTERNAL SUSTAINABILITY BOARD (ISB) is chaired bythe Group CEO and comprises senior managers from all business unitsand core countries the Group CFO (as chairman of Sustainable FinanceSteering Committee) and the Corporate SustainabilityGeneral Manager The ISB has group-wide decision rights on allsustainability-related issues (including our climate approach) and is themain platform for driving sustainability at group level It debates andtakes decisions on any sustainability-related matter both at a strategiclevel and in more operational terms
bull The CORPORATE SUSTAINABILITY DIVISION is headed by the CorporateSustainability General Manager and reports directly to the Group CEOThe team is responsible for developing the sustainability strategy andimplementing it across the group The team monitors and informs theExecutive Committee and the Board of Directors on progress twice ayear via the KBC Sustainability Dashboard
bull A SUSTAINABLE FINANCE PROGRAMME to focus on integrating the climate approachwithin the group It oversees and supports the business as it develops its climate-resilience in line with the TCFD recommendations and the EU Action Plan
bull The programme is overseen by a SUSTAINABLE FINANCE STEERING COMMITTEEchaired by the Group CFO Via the KBC Sustainability Dashboard progress isdiscussed regularly within the Internal Sustainability Board the Executive Committeeand the Board of Directors The latter is used to evaluate the programmersquos statusreport once a year
bull In addition to our internal organisation we have set upEXTERNAL ADVISORY BOARDS to advise KBC on variousaspects of sustainability They consist of experts from theacademic world
bull An EXTERNAL SUSTAINABILITY BOARD advises theCorporate Sustainability Division on KBC sustainabilitypolicies and strategy
bull An SRI ADVISORY BOARD acts as an independent body forthe SRI funds and oversees screening of the sociallyresponsible character of the SRI funds offered by KBCAsset Management
External Sustainability Board amp SRI Advisory Board
Country Coordinator Corporate Sustainability
Sustainable finance Program
Board of Directors
Executive Committee
Senior Representatives from Finance and Risk functions
together with Sustainability Experts
KBC Group Corporate Sustainability team
Our sustainability strategySustainability embedded in our organisation
Internal Sustainability Board
22
Our ESG ratings
Latest Score(11 Nov 2020)
CDP A- Leadership
FTSE4Good 465
ISS Oekom C Prime
MSCI AAA
Sustainalytics Low Risk 4th percentile of 385 diversified banks (Nov 42020)
SampP Global -RobecoSAM
72100
Vigeo Eiris Not publicly available
Our sustainability strategyWe substantially raise the bar for our climate-related ambitions
More than doubling of SRI funds by lsquo25 SRI funds ge 50 of new fund production by lsquo21
Target raised from 50 to 65 by lsquo30
Target raised from 90 to 100 by lsquo30 Target reduction of own emissions raised from 65 to 80 by lsquo30
KBC will achieve full climate neutrality as of the end of 2021 by offsetting the balance
7 9 12 14
30
2017 20192018 targetrsquo251H20 targetrsquo302018
57
20192017 1H20
41 4457
65
Volume of SRI Funds(In billions of EUR)
Renewable energy loans(In of total energy-sector loan portfolio)
252
8634 36 26
2016 1H202017
0
2018 2019 2021
Direct coal-related finance(In millions of EUR)
Proven track record in building down direct coal exposure
Firm commitment to exit coal supporting existing clients in their transition
Green electricity(In of own electricity consumption)
78
1H20 targetrsquo30
100
2017 2018
83
2019
74 83
Reduction own GHG emissions(In compared to 2015)
50
2019 targetrsquo30
29
2017 2018
38
80
Full Exit
23
Our sustainability strategyLatest achievements
2019 achievementsbull We signed the Collective Commitment to Climate Action an
initiative of the UNEP FI (Sep 2019)bull The entire range of KBC sustainable funds is fully compliant with the
Febelfin quality standard for sustainable investment bull KBC signed the Tobacco-Free Finance Pledge drawn up by the
international organisation Tobacco Free Portfoliosbull KBC signed the lsquoOpen letter to index providers on controversial
weapons exclusionsrsquo ndash an investor initiative coordinated by Swiss Sustainable Finance
bull We continued to build on lsquoTeam Bluersquo ndash a group-wide initiative at KBC to strengthen ties and promote cooperation among all the grouprsquos staff in the different countries in which KBC operates
Sustainable finance(KBC Group in millions of euros)
2019 2018
Green finance
Renewable energy and biofuel sector 1 768 1 235
Social finance
Health care sector 5 783 5 621
Education sector 975 943
Socially Responsible Investments
SRI funds under distribution 12 016 8 970
Total 20 542 16 769
For the latest sustainability report we refer to the KBCCOM websitehttpswwwkbccomencorporate-sustainabilityreportinghtml
2020 achievementsbull Update of the KBC energy policy and implementation of biodiversity
policybull Asset management joins the Climate Action 100+bull KBC CBC and the European Investment Bank (EIB) together make
300m EUR available to Belgian SMEs for sustainable loan (focus on climate and agriculture lending)
bull Solar panels on roof KBC building (BE)
24
bull The first results of the pilot indicate that KBC appears to be less exposed to industrial groups active in the 7 high-carbon sectors (fossil fuels power automotive shipping aviation cement and steel) compared to the 16 other PACTA pilot banks
bull KBC is involved in a project to further develop the methodology used within the UNEP FI programme The goal of which is to identify the physical risks arising from certain climate scenarios for the most significantly affected sectors in our loan portfolio We have begun the analysis of physical risks for mortgage loans in Flanders and transition risks for the metals sector
Pilots
bull In 2019 we began to pilot the PCAF methodology to calculate the carbon footprint of the portfolios car lease car loans mortgage loans for residential real estate and commercial real estate
We have launched 3 pilot projects (PACTA PCAF and UNEP FI) working on a series of tools and methodologies (1) to enhance our ability to identify and to translate climate-related risks and opportunities in our strategy(2) quantify the indirect impact of our most carbon-intensive sectors and business lines
Our sustainability strategyPreparing for a science-based approach
25
Contents
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT
30 SEPTEMBER 2020
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
63
15
21
Belgium
Group Centre
Czech Republic
International Markets
2
26
Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer deposits increasedy-o-y in most of our core countries
Higher net interest income and lower net interestmargin
Slightly higher net fee and commission income
Lower net gains from financial instruments at fairvalue and lower net other income
Excellent result of non-life insurance and excellentsales of life insurance y-o-y
Strict cost management
Sharply lower net impairments on loans
Solid solvency and liquidityComparisons against the previous quarter unless otherwise stated
3Q 2020 key takeaways
Excellent net result of 697m EUR in 3Q20
ROE 7 (15 in 3Q20) Cost-income ratio 59 (adjusted for specific items)
Combined ratio 83 Credit cost ratio 061 (017 without
collective Covid-19 impairments) Common equity ratio 166 (B3 DC fully loaded)
Leverage ratio 59 (fully loaded)
NSFR 146 amp LCR 142
9M203Q20 financial performance
Net result
when evenly spreading the bank tax throughout the year 784m EUR collective Covid-19 impairments in 9M20 of which 637m EUR management overlay and 147m EUR impairments captured by the ECL models through the updated IFRS 9 macroeconomic variables
430
745612
702
-5
210
697
1Q19 2Q19 3Q19 2Q201Q204Q19 3Q20
27
Net result at KBC Group
Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-companygroup items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT
430
745
612702
-5
210
697
1Q201Q19 3Q192Q19 3Q204Q19 2Q20
NET RESULT AT KBC GROUP334
618
514586
-11
42
546
2Q201Q19 3Q203Q192Q19 1Q204Q19
68 83 79 7936
85 73
3361 66
94119 134
-20 -46 -30 -31 -50
157
-4
1Q19 2Q19 4Q193Q19
-13-20
1Q20
173
2Q20 3Q20
96
124 99143
3
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT
Amounts in m EUR
Non-Life result
Life result
Non-technical amp taxes
28
Higher net interest income and lower net interest margin
Net interest income (1122m EUR)bull Increased by 4 q-o-q and decreased by 4 y-o-ybull The q-o-q increase was driven primarily by
o the positive impact of TLTRO3 (+26m EUR q-o-q)o a positive one-off item (+26m EUR NII insurance)o higher margin on new production mortgages than the margin on the
outstanding portfolio in Belgium the Czech Republic and Slovakiao higher netted positive impact of ALM FX swapspartly offset byo the further negative impact of the CNB rate cuts (as the last CNB rate cut
from 100 to 025 happened early May 2020)o lower reinvestment yields
bull The y-o-y decrease was mainly the result of the CNB rate cuts thedepreciation of the CZK amp HUF and the negative impact of lowerreinvestment yields
Net interest margin (181)bull Decreased by 1 bp q-o-q and by 13 bps y-o-y due mainly to the CNB
rate cuts the negative impact of lower reinvestment yields and anincrease of the interest-bearing assets (denominator)
NIM
NII
992 971 977
117 114 15
2Q20
118 111124 1
114
1006
1195
2Q19
14
-1
1182
10661044
1
3Q19
112212
1057
4Q19
17
1Q19
1129
1Q20
166106
-1
131
3Q20
1132 11741083
3Q191Q19
181
2Q19 2Q204Q19 1Q20
194198
3Q20
194 194 197
182
Amounts in m EUR
NII - netted positive impact of ALM FX swapsNII - Holding-companygroup
NII - InsuranceNII - Banking
From all ALM FX swap desks NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps amp repos
Non-annualised Loans to customers excluding reverse repos (and bonds) Growth figures are excluding FX consolidation adjustments reclassifications and collective Covid-19 ECL Customer deposits including debt certificates but excluding repos Customer deposit volumes excluding debt certificates amp repos +1 q-o-q and +9 y-o-y
ORGANIC VOLUME TREND Total loans ow retail mortgages Customer deposits AuM Life reserves
Volume 158bn 69bn 212bn 204bn 27bn
Growth q-o-q +1 +2 +1 +1 0
Growth y-o-y +4 +6 +4 -4 -3
29
Slightly higher net fee and commission income
Amounts in bn EUR
AuM
210 210 212 216
193202 204
4Q191Q19 3Q202Q203Q192Q19 1Q20
264 270 275 279 270 237 245
219 230 237 243 229219 218
-73 -65 -68 -77 -71 -68 -73
3Q201Q19
410
2Q19 3Q19 4Q19 2Q201Q20
435 444 445 429388 390
Distribution Banking services Asset management services
Amounts in m EUR Net fee and commission income (390m EUR)bull Up by 1 q-o-q and down by 12 y-o-ybull Q-o-q increase was the result of the following
o Net FampC income from Asset Management Services increased by4 q-o-q as a result of higher management fees partly offset bylower entry fees from unit-linked life insurance products
o Net FampC income from banking services roughly stabilised q-o-qas higher fees from payment services and higher networkincome was offset by lower securities-related fees (after twoexceptionally strong quarters)
o Distribution costs rose by 8 q-o-q due chiefly to highercommissions paid linked to increased non-life insurance sales
bull Y-o-y decrease was mainly the result of the followingo Net FampC income from Asset Management Services fell by 11
y-o-y as a result of lower management fees and entry feeso Net FampC income from banking services decreased by 8 y-o-y
(-6 y-o-y excluding FX effect) driven mainly by lower fees frompayment services (partly due to less transaction volumes as aresult of Covid-19 partly due to the SEPA regulation) and lowerfees from credit files amp bank guarantees partly offset by highersecurities-related fees
o Distribution costs rose by 7 y-o-y due chiefly to highercommissions paid linked to banking products and increasednon-life insurance sales
Assets under management (204bn EUR)bull Increased by 1 q-o-q due mainly to a positive price effect (+1)
next to limited net inflows in mutual fund businessbull Decreased by 4 y-o-y due mainly to a negative price
effect
FampC
30
Insurance premium income (gross earned premiums) at 715m EURbull Non-life premium income (448m EUR) increased by
2 y-o-ybull Life premium income (267m EUR) down by 3 q-o-q
and by 8 y-o-y
The non-life combined ratio for 9M20amounted to an excellent 83 This is theresult of 4 y-o-y premium growth combinedwith 13 y-o-y lower technical charges in9M20 The latter was due mainly to lowernormal claims in 9M20 (especially in Motordue to Covid-19) and a negative one-off in9M19 (-16m due to reassessment on claimsprovisions) However note that 9M20 wasimpacted by a higher negative cededreinsurance result compared with 9M19
Non-life premium income up y-o-y and excellent combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUMS)
9093 92
1Q 1H 9M
83
FY
9283
90
2019 2020
415 425 440 441 443 435 448
351 317 291 364 297 276 267
805740
1Q19 2Q19 3Q19 4Q19 3Q201Q20 2Q20
766 742 731 712 715
Life premium income Non-Life premium income
Amounts in m EUR
31
Non-life and life sales up y-o-y
Sales of non-life insurance productsbull Up by only 1 y-o-y due to negative impact of Covid-19
on renewals of existing business (mainly lsquoWorkmenrsquoscompensationrsquo and lsquoGeneral third-party liabilityrsquo)
Sales of life insurance productsbull Decreased by 25 q-o-q but increased by 4 y-o-ybull The q-o-q decrease was driven by both lower sales of
unit-linked products and guaranteed interest products inBelgium
bull The y-o-y increase was driven entirely by higher sales ofunit-linked products in Belgium (due to a shift frommutual funds to unit-linked products by Private Bankingclients) only partly offset by lower sales of guaranteedinterest products (due mainly to the suspension ofuniversal single life insurance products in Belgium)
bull Sales of unit-linked products accounted for 49 of totallife insurance sales in 3Q20
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
214 198 161 160 177327
205
302 261242 311 249
235
214
4Q19 2Q201Q19 3Q202Q19 3Q19 1Q20
516459
403471
427
561
420
Guaranteed interest products Unit-linked products
534
412 411 400
567
415 416
1Q204Q192Q191Q19 2Q203Q19 3Q20
Amounts in m EUR
32
Lower FIFV and net other income
The q-o-q decline in net gains from financialinstruments at fair value was attributable mainlyto the exceptional rebound in 2Q20bull a negative change in market credit and funding value
adjustments although still a positive number (mainly asa result of changes in the underlying market value of thederivatives portfolio due to decreasing counterpartycredit spreads amp KBC funding spread partly offset bylower long-term interest rates)o FVA 24m EUR (-49m EUR q-o-q)o CVA 30m EUR (+3m EUR q-o-q)o MVA 2m EUR (+1m EUR q-o-q)
bull lower dealing room income after an excellent 2Q20result
bull a lower net result on equity instruments (insurance)
Net other income amounted to 37m EUR belowthe normal run rate of around 50m EUR perquarter due to among other things an additionalimpact of the tracker mortgage review in Ireland of-6m EUR (of which -4m related to the trackermortgage fine)
FIFV
Amounts in m EUR
-186
10062 48
-59
126
-82
-2
1Q19
-3
8
-8
4Q19
-2219
-37 -25-1
130
17
85
3Q203Q19
44
29 1028-58
1Q20
-3
2Q20
11 3155
2Q19
13
19
-2-46
-385
253
99
59
133
43 47 50 5337
4Q191Q19 2Q19 3Q19 3Q202Q201Q20
NET OTHER INCOME
Dealing room amp other incomeMVACVAFVA Net result on equity instruments (overlay insurance)
M2M ALM derivatives
33
Strict cost management
Operating expenses excluding bank taxesdecreased by 37 y-o-y in 9M20 roughly in linewith our FY20 guidance of -35 y-o-y due chieflyto the announced cost savings related to Covid-19
Operating expenses excluding bank taxesincreased by 3 q-o-q primarily as a result of
o higher staff expenses (largely due to reducedaccrued variable remuneration in 2Q20 and wageinflation in most countries despite less FTEs)
o seasonally higher marketing costs higher facilitiesand depreciation amp amortisation costs
partly offset byo seasonally lower ICT costs and professional fees
Costincome ratio (banking) adjusted for specificitems at 58 in 3Q20 and 59 YTD (58 inFY19) Costincome ratio (banking) 52 in 3Q20and 61 YTD both distorted by bank taxes andthe latter by lower FIFV
Total bank taxes (including ESRF contribution) areexpected to increase by 3 y-o-y to 504m EUR inFY20
OPERATING EXPENSES
913 957 947 994 931 877 905
382 407
1338
3Q19
2130
1Q19 2Q19 4Q19
28 51
1Q20
27
2Q20
904
3Q20
1296
988 975 1045926
Bank tax Operating expenses
See glossary (slide 87) for the exact definitionAmounts in m EUR
TOTAL Upfront Spread out over the year
3Q20 1Q20 2Q20 3Q20 1Q20 2Q20 3Q20 4Q20e
BE BU 0 289 2 0 0 0 0 0
CZ BU 0 40 0 0 0 0 0 0
Hungary 20 25 1 0 20 18 20 24
Slovakia 0 3 0 0 8 8 0 0
Bulgaria 0 17 -1 0 0 0 0 0
Ireland 1 4 -1 0 1 1 1 26
GC 0 0 0 0 0 0 0 0
TOTAL 21 377 0 0 29 27 21 50
EXPECTED BANK TAX SPREAD IN 2020
Amounts in m EUR
34
Sharply lower asset impairments
Sharply lower asset impairments q-o-qbull The q-o-q decrease of loan loss provisions was attributable
mainly too 746m EUR collective Covid-19 impairments booked in 2Q20
of which 5m was reversed in 3Q20 (small impact fromupdated IFRS 9 macroeconomic variables and managementoverlay)
o lower loan loss impairments in Belgium and the CzechRepublic (2Q20 was impacted by several corporate files inboth countries)
bull Impairment of 11m EUR on lsquootherrsquo due to several small items(of which 4m EUR ndash the largest amount ndash as the result of animpairment on a lease contract related to a HQ building inHungary)
The credit cost ratio in 9M20 amounted tobull 17 bps (12 bps in FY19) without collective Covid-19 ECLbull 61 bps with collective Covid-19 ECL
The impaired loans ratio improved to 32 18 ofwhich over 90 days past due
ASSET IMPAIRMENT
67 75 78 9957
4369
26
3Q19
41
1Q19 3Q20
36
2Q19
63
1
1Q20
25
7
20
4Q19
12
141 746
2Q20
11
-5
40
82
857
IMPAIRED LOANS RATIO
32
19
4Q19
2124
1Q19 3Q192Q19
20 19
1Q20
37
19
2Q20
18
3Q20
43
35 35 3433
CREDIT COST RATIO
FY18FY14 FY15 FY19 9M20FY16
017
023
FY17
042
009
-006 -004
012
061
of which over 90 days past dueImpaired loans ratio
Other impairments
Collective Covid-19 ECL
Impairments on financial assets at AC and FVOCI
Amounts in m EUR
CCR with collective Covid-19 ECL CCR without collective Covid-19 ECL
35
Loan loss experience at KBC
9M20CREDIT COST
RATIO
FY19CREDIT COST
RATIO
FY18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
AVERAGE lsquo99 ndashrsquo19
Belgium 059 022 009 009 012 na
Czech Republic 064 004 003 002 011 na
International Markets 079 -007 -046 -074 -016 na
Group Centre -027 -088 -083 040 067 na
Total 061 012 -004 -006 009 042
Credit cost ratio amount of losses incurred on troubled loans as a of total average outstanding loan portfolio
36
Impaired loans ratios of which over 90 days past due
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
21
1Q19 2Q19
20
4Q19 3Q20
1819
2Q201Q20
19
43
19
3Q19
37 35 35 33 34 32
24
Impaired loans ratioOf which over 90 days past due
2Q19 3Q19
11
1Q20
12
2Q20
11
3Q20
13
1Q19 4Q19
23
131415
24 2523 22 22 21
49
1Q20
48 45
3Q19
85
5176
4Q191Q19 2Q20
58
2Q19
91
53
118
98
82 78 72
3Q20
BELGIUM BU
11
2222
12
2Q20
12
3Q20
11
1Q20
24
12
1Q19 3Q19
11
26
2Q19
11
4Q19
23 23 24
KBC GROUP
37
Cover ratios
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
453
3Q191Q19
422
2Q19 2Q204Q19 1Q20 3Q20
656599
420
604 603
420 434
604
448
624
452
617
Impaired loans cover ratio
Cover ratio for loans with over 90 days past due
1Q20 3Q20
472
2Q20
660
2Q191Q19
690
3Q19 4Q19
474 475
639
481
655 655
472
669
472 492
661
421 449
1Q19 2Q19 1Q203Q19 2Q204Q19 3Q20
644
430
625
423454
642
417
634 626659
464
654
4Q191Q19 3Q201Q20 2Q202Q19 3Q19
430
607
327 352
481
321
464
327
470
324
470 487
340
465
38
NET PROFIT ndash BELGIUM NET PROFIT ndash CZECH REPUBLIC
993 932605
439335
361412
1575
2016
1432
2019
1240
2017
1450
1089
2018 2020
1344
9M20 ROAC 12
Amounts in m EUR
465 534 484584 281
131168 170
205
2018
702
2016
596
2017 2019 2020
654
789
9M20 ROAC 22NET PROFIT ndash INTERNATIONAL MARKETS
289370 440
260 113
13974
93
119
20192016
533
2017 2018
444
2020
428379
9M20 ROAC 7
Overview of contribution of business units to 9M20 result
4Q 9M 4Q 9M 4Q 9M
NET PROFIT ndash KBC GROUP
902
685462 621 702
2016
1742 19482113
2017
1787
2018 2019 2020
2427 2575 2570 2489
9M20 ROAC 11
4Q 9M
39
Balance sheet KBC Group consolidated at the end of September 2020
76
67
158
146
Total assets (EUR 321bn)
Other (incl interbank loans reverse repos property amp equipment etc)
Insurance investment contracts
Loan book (loans and advances to customers)
Investment portfolio (equity and debt securties)
Trading assets
51
2621
185
12197
Total liabilities and equity (EUR 321bn)
Deposits from customers
Technical provisions before reinsurance NL and L
Other (incl interbank deposits)
Equity (including AT1)
Other MREL instruments and debt certificates
Liabilities under insurance investment contracts
Trading liabilities
Credit quality Capital adequacy ampliquidity position
40
Y-O-Y ORGANIC VOLUME GROWTH
4
BE
Volume growth excluding FX effects divestmentsacquisitions and collective Covid-19 ECL Loans to customers excluding reverse repos (and bonds) Customer deposits including debt certificates but excluding repos Total customer loans in Bulgaria new bank portfolio +16 y-o-y while legacy -28 y-o-y
Loans DepositsRetail mortgages
35
2
8
Loans Retail mortgages
6
Deposits
2
Retail mortgages
Loans Deposits
121214
DepositsLoans Retail mortgages
6
1011
DepositsLoans
22
Retail mortgages
17
8
DepositsLoans Retail mortgages
22
-5
6
4
Loans Retail mortgages
Deposits
4
Balance sheetLoans and deposits continue to grow in all countries
CR
41
Sectorial breakdown of outstanding loan portfolio (1)(179bn EUR) of KBC Bank Consolidated
11
7
14
6
8443
3
42
Services
Automotive
Distribution
Rest
Building amp construction
Real estate
Finance amp insurance
AuthoritiesAgriculture farming fishing
Private Persons
Chemicals
16
17
45
Other sectors
Electricity
Food producers
14
14
Metals
10Machinery amp heavy equipment
07
Shipping 07
Hotels bars amp restaurants
05
Oil gas amp other fuels
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
42
Geographical breakdown of the outstanding loan portfolio (2)(179bn EUR) of KBC Bank Consolidated
541
Belgium
Ireland
163
2132
Other CEE
Czech Rep
Slovakia
58
50
Hungary
Bulgaria87
Other W-Eur 0315
North America
14
Asia
16Rest
It includes all payment credit guarantee credit (except for confirmations of letters of credit and similar exportimport related commercial credit) standby credit and credit derivatives granted by KBC to private persons companies governments and banks Bonds held in the investment portfolio are included if they are corporate or bank issued hence government bonds and trading book exposure are not included Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
43
Government bond portfolio ndash Notional value
Notional investment of 497bn EUR in government bonds (excl trading book) at end of 9M20 primarily as aresult of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-incomeinstruments
Notional value of GIIPS exposure amounted to 55bn EUR at the end of 9M20
27
18
67
12
9
4
Bulgaria3
Belgium
Czech Rep
Slovakia3
PolandHungary
3Italy
France
Other
SpainGermany
Austria Netherlands
IrelandPortugal
END OF 9M20(Notional value of 497bn EUR)
() 1 () 2
29
14
366
4
13
10
5
France
Belgium
Poland
Czech Rep
Spain
Italy
Hungary
3
SlovakiaBulgaria
Other
Germany Austria
Netherlands IrelandPortugal
END OF FY19(Notional value of 461bn EUR)
() 1 () 2
44
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
45
No IFRS interim profit recognition given the more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share The impact of transitional was limited to 2 bps at the end of 9M20 as there was no profit reservation At year-end2020 the impact of the application of the transitional measures is expected to result in a positive impact on CET1 of56 bps compared to fully loaded
Strong capital position (1)Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
1045 OCR
FY19
163
9M191H19
166
1Q19 1Q20 1H20
166157
9M20
156 154
171
The fully loaded common equity ratiostabilised q-o-q at 166 at the end of 9M20based on the Danish Compromise despite1bn EUR RWA add-ons for anticipated PDmigrations
KBCrsquos CET1 ratio of 166 at the end of9M20 represents a solid capital bufferbull 86 capital buffer compared with the current
theoretical minimum capital requirement of795 (as a result of the announced ECB andNational Bank measures which providedsignificant temporary relief on the minimumcapital requirements)
bull 61 capital buffer compared with the OverallCapital Requirement (OCR) of 1045 (which stillincludes the 250 capital conservation buffer ontop of the 795)
bull 59 capital buffer compared with theMaximum Distributable Amount (MDA) of1069 (given small shortfall in AT1 and T2bucket)
The difference between fully loaded CET1ratio and the IFRS9 transitional CET1 ratioonly amounted to 2 bps in 3Q20
795 theoretical regulatory minimum
1069 MDA
Total distributable items (under Belgian GAAP) KBC Group 106bn EUR at 9M 2020 of whichbull available reserves 949mbull accumulated profits 8 192m
46
Strong capital position (2)
Fully loaded Basel 3 total capital ratio (Danish Compromise)
157 CET1
18921 T2
16 AT1
1Q19 1H19
21 T2
156 CET1 166 CET1
16 AT1 15 AT1
1Q209M19
154 CET 1
19 T2
15 AT1
206
20 T2
171 CET1
FY19
19 T2192
15 AT1
163 CET1
18 T2
15 AT115 AT1
1H20
18 T2
9M20
193 197 198 198
166 CET1
The fully loaded total capital ratiostabilised q-o-q at 198 at the end of9M20
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share
47
Fully loaded Basel 3 leverage ratio and Solvency II ratio
55
1Q19 1H19 9M19 FY19 1Q20
52
1H20 9M20
51 50 52 48 48
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
1H191Q19
65
9M19 FY19
60
9M201H201Q20
61 6068
60 59
Solvency II ratio
1H20 9M20
Solvency II ratio 198 196
The q-o-q delta in the Solvency II ratio was mainlydriven by a lower compensating effect of the volatilityadjustment
No IFRS interim profit recognition given more stringent ECB approach Taking into account the withdrawal of the final gross dividend over
2019 profit of 25 EUR per share
No IFRS interim profit recognition given more stringent ECB approach Taking into account the adjustment of the final dividend over 2019
48
Strong customer funding base with liquidity ratiosremaining very strong
KBC Bank continues to have a strong retailmid-cap deposit base in its core markets ndash resulting in a stable funding mix with a significant portion of the fundingattracted from core customer segments and markets
KBC Bank participated to the TLTRO III transaction for an amount of 195bn EUR in June (bringing the total TLTRO exposure to 219bn EUR) which significantlyincreased its funding mix proportion and is reflected in the lsquoInterbank Fundingrsquo item below
69 customer
driven
Net Stable Funding Ratio (NSFR) is based on KBC Bankrsquos interpretation of the proposal of CRR amendment Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements From EOY2017 onwards KBCBank discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure
Ratios FY19 9M20 Regulatory requirement
NSFR 136 146 ge100
LCR 138 142 ge100
NSFR is at 146 and LCR is at 142 by the end of 9M20bull Both ratios were well above the regulatory requirement of 100 due
to a strong growth in customer funding and the participation toTLTRO III
9
6969
9
73
2
63
8
719
10
2
71
FY13
18
13
93
FY18
7
FY14
18
68
86
7
11
3
71
FY15
10
FY19
48
FY16
8
62
48
9
63
1
FY17
8 8
72
7
82
9M20
Interbank FundingSecured Funding
Total Equity
Debt issues placed at institutional relationsCertificates of depositFunding from Customers
Government and PSE
Mid-cap
Retail and SME
5
19
76
133 766 139 560 143 690 155 774 163 824 176 045 189 453
FY14 FY15 FY16 FY17 FY18 FY19 3Q20
Funding from customers (m EUR) of KBC Banking Group
49
Upcoming mid-term funding maturities
In December 2019 KBC Bank NV decided to early repay theremaining part of the TLTRO II (ie 2545bn EUR) and entered intothe TLTRO III for 25bn EUR
In May 2020 KBC Bank issued a covered bond for an amount of1bn EUR with a 55-year maturity
In June 2020 KBC Group issued its second Green seniorbenchmark for an amount of 500m EUR with a 7-year maturitywith call date after 6 years
In June 2020 KBC Bank participated in TLTRO III for an amount of195bn EUR which brings the total TLTRO exposure to 219bn EURmaturing in 2023
In September 2020 KBC Group issued a senior benchmark for anamount of 750m EUR with a 6-year maturity with call date after 5years
KBC Bank has 6 solid sources of long-term fundingbull Retail term depositsbull Retail EMTNbull Public benchmark transactionsbull Covered bondsbull Structured notes and covered bonds using the private
placement formatbull Senior unsecured T1 and T2 capital instruments issued at KBC
Group level and down-streamed to KBC Bank
38
2816
36
01
06
16
09 0908
0503 03
0
1000
2000
3000
4000
5000
6000
7000
2020 2021 2022 2023 2024 2025 2026 2027 gt= 2028
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond
Total outstanding = 19bn EUR
(Including of KBC Grouprsquos balance sheet)
50
KBC has strong buffers cushioning Sr debt at all levels (9M 2020)
KBC GroupSenior6 518
Tier 2 2 179
Additional Tier 11 500
CET1 (transitional)16 606
KBC Bank
Tier 2 1 680
Additional Tier 11 500
CET1 (transitional)12 872
176
KBC Insurance
Tier 2 500
Parent shareholders equity3 578
Buffer for Sr level 226bn EUR
Buffer for Sr level 203 bn EUR
Legacy T2 issued by KBC Bank will disappear over time
nominal amounts in million EUR
Subordinated on loan by KBC Group6 518
51
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at KBC Group level with bail-in as thepreferred resolution tool
SRBrsquos currently applicable approach to MREL is defined in the lsquo2018 SRB Policy for the 2nd wave of resolution plansrsquopublished on 16 January 2019 which is based on the current legal framework (BRRD 1)
The actual binding target is 967 as of TLOF as from 31-12-2021
TLOF Total Liabilities and Own FundsLAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR Combined Buffer Requirement = Conservation Buffer (25) + O-SII buffer (15) + countercyclical buffer (015 in previous target 035 in revised target)
KBC complies with resolution requirementsMREL target applicable as from 31-12-2021
LAA
RCA
MCC
8 P1
175 P2R
435 CBR
8 P1
175 P2R
31 (CBR ndash 125)
100 RWA
95 RWA
= 263as of RWA
MREL target = 967 as of TLOF
x RWATLOF balance
31122017=
967 as of TLOF
Actual in of TLOF
23
59
06
94
05
3Q20
HoldCo senior
T2 part of own fundsAT1
CET1
52
Available MREL as a of TLOF
1Q201Q19 1H19 9M19 FY19
93104
9M201H20
96 98 10093 94
Available MREL () as a of TLOF
Hybrid approach Taking into account the withdrawal of the final gross dividend over 2019 profit of 25 EUR per share As of 1H20 MREL ratio includes the impact of IFRS9 transitional measures
The decrease of MREL as a of TLOF asof 1H20 can be fully explained by theparticipation in TLTRO III for an amountof 195bn EUR in June 2020 Excludingthis MREL would have amounted to101 at the end of 9M20
53
Latest credit ratings
SampPMoodyrsquos Fitch
Gro
upBa
nkIn
sura
nce
Senior UnsecuredTier IIAdditional Tier IShort-term P-2 A-2 F1Outlook Stable Negative Negative
Baa1 A- A- BBB BBB+
Ba1 BB+ BBB-
Senior Unsecured
Short-term P-1 A-1 F1Outlook Stable Stable Negative
A1 A+ A+Tier II
Covered Bonds Aaa - AAA
-
Financial Strength RatingIssuer Credit Rating
- A -- A -
BBB
Outlook - Negative -
-
Latest updates triggered by the COVID-19 pandemicbull 23 Apr 2020 SampP revised KBC Group and KBC Insurance outlook to negative The outlook for KBC Bank remains Stable because of the
substantial buffers of already existing bail-in-able debtbull 30 Mar 2020 Fitch revised KBC Group and KBC Bank outlook to negative Next to that driven by methodology changes Fitch
downgraded Tier 2 debt by one notch to lsquoBBB+ and upgraded AT1 debt by one notch to lsquoBBB-rsquo
54
Contents
1 Strategy and business profile
2 Financial performance
3 Solvency liquidity and funding
4 Covid-19
5 Covered bond programme
6 Green bond framework
7 Looking forward
Appendices
55
COVID-19 (19)
Latest status of government amp sector measures in each of our core countries
Opt-in 3 months for consumer finance 6-9months for mortgages and non-retail loans(until 31 Oct 2020 and can be extended to 31Dec 2020)bull For private persons deferral of principal
and interest payments while only deferralof principal payments for non-retail clients
bull Interest is accrued over the deferralperiod apart from families with netincome of less than 1700 EUR For thelatter group this results in a modificationloss for the bank (-11m EUR booked in 2Q)
Belgium
Defe
rral
of p
aym
ents
Guar
ante
e Sc
hem
e amp
liq
uidi
ty a
ssist
ance
HungaryOpt-in 3 or 6 monthsApplication period finished on 30 Sep 2020 howeverend of Oct 2020 all deferrals expiredbull Applicable for retail and non-retail clientsbull For private persons and entrepreneurs deferral of
principal and interest payments while onlydeferral of principal payments for non-retail clients
bull Interest is accrued over the deferral period butmust be paid in the final instalment resulting in amodification loss for the bank (-5m EUR booked in2Q)
bull For consumer loans the interest during thedeferral period may not exceed the 2-week reporate + 8
Czech Republic
Opt-out a blanket moratorium originally until 31 Dec 2020 Extension of the deferral until 30 JUN 2021 but with certain eligibility criteria (no detailed legislation available yet for non-retail clients)bull Applicable for retail and non-retail clientsbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period
but unpaid interest cannot be capitalisedand must be collected on a linear basisduring the remaining (extended) lifetimeThis results in a modification loss for thebank (-18m EUR booked in 1Q revised to -11mEUR in 2Q based on the actual opt-out ratio)
bull A state guarantee scheme of up to 40bn EURto cover losses incurred on future non-retailloans granted before 31 Dec 2020 to viablecompanies with a tenor of maximum 12months and a maximum interest rate of125 Guarantee covers 50 of losses above3 of total credit losses and 80 above 5of losses
bull As of 3Q a revised state guarantee schemeof up to 10bn EUR has been offered to coverlosses on future SME loans granted before 31Dec 2020 with a tenor between 1 and 3years and with a maximum interest rate of2 Guarantee covers 80 of all losses
bull The Czech-Moravian Guarantee and DevelopmentBank (CZMRB) launched several guaranteeprograms (COVID II COVID II Praha COVID III) forworking capital loans provided by commercial banksto non-retail clients The loan amount isguaranteed up to 80 or 90 of the loan amountInterest on these loans is subsidised up to 25(COVID II)
bull The Export Guarantee and Insurance Corporation(EGAP) under its COVID Plus program offersguarantees on loans provided by commercial banksEGAP guarantees 70 to 80 of the loan amountdepending on the rating of the debtor The programis aimed at companies in which exports accountedfor more than 20 of turnover in 2019
bull A guarantee scheme is provided byGarantiqa and the Hungarian DevelopmentBank These state guarantees can cover upto 90 of the loans with a maximum tenorof 6 years
bull Funding for growth scheme (launched byMNB) a framework amount of 42bn EURfor SMEs that can receive loans with a 20-year tenor and a maximum interest rate of25
bull Annual interest rate on personal loansgranted by commercial banks may notexceed the central bank base rate by morethan 5pp (until 31 Dec 2020)
56
Opt-in 9 months or 6 months (for leases)Application period is still running (but most will end in 1Q 2021)bull Applicable for retail customers SMEs and
entrepreneursbull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but
the customer has the option of paying allinterest at once after the moratorium or payingit on a linear basis The latter option wouldresult in an immaterial modification loss for thebank
Slovakia
Defe
rral
of p
aym
ents
Gua
rant
ee S
chem
e amp
liq
uidi
ty a
ssist
ance
IrelandBulgaria Opt-in 3 to 6 months Application period expired on 30 Sep 2020bull Applicable for mortgage loans consumer
finance loans and business banking loanswith a repayment schedule
bull Deferral of principal and interest paymentsfor up to 6 months (with review after 3months) for mortgages amp consumer financeand 3 months for business banking
bull Option for customers to extend their loanterm by up to 6 months to match thepayment holiday
bull Interest is accrued over the deferral period
bull Anti-Corona Guarantee program offered by theSlovak Investment Holding (SIH) and aimed atSMEs consists of two components (i) an 80state guarantee with a 50 portfolio cap and (ii)the interest rate subsidy of up to 4 pa
bull In addition financial aid in the form of the Stateguarantee schemes with guaranteed fee subsidycan be provided by the (i) Slovak InvestmentHolding (guarantee of up to 90 for loans lt 2mEUR) and the (ii) Export-Import Bank of SR(guarantee of up to 80 for loans of 2-20m EUR)No portfolio cap is applied
COVID-19 (29)
Latest status of government amp sector measures in each of our core countries
bull 04bn EUR of state guaranteesprovided by the BulgarianDevelopment Bank to commercialbanks Of this amount 01bn EUR isused to guarantee 100 of consumerloans while 03bn EUR is planned to beused to guarantee 80 of non-retailloans
bull The Irish authorities put substantial reliefmeasures in place amongst other measuresvia the SBCI KBC Bank Ireland is mainlyfocused on individual customers thereforethe relief programs for business customersare less relevant
Opt-in 6 months (until 31 Mar 2021 at the latest)Application period expired on 30 Sep 2020bull Applicable for retail and non-retail
customersbull Deferral of principal with or without
deferral of interest paymentsbull In the case of principal deferral only the
tenor is extended by 6 monthsbull Interest is accrued over the deferral
period and is payable in 12 months(consumer and non-retail) or 60 months(mortgages) in equal instalments
57
COVID-19 (39)
Overview of EBA compliant payment holidays and public Covid-19 guarantee schemes
Payment holidays ndash by country
Hungary opt-out a blanket moratorium applicable for retail and non-retail loans bull Deferral of principal and interest paymentsbull Interest is accrued over the deferral period but unpaid interest cannot be capitalised
and must be collected on a linear basis during the remaining (extended) lifetime
Payment holidays excl Hungary ndash by segment
By the end of September 2020bull The volume of granted loans with payment holidays according to the EBA definitions amounted
to 137bn EUR or 9 of total loan book
bull Approx 1bn EUR of moratoria already expired of which 97 have resumed paymentsbull Government guaranteed loans granted (under Covid-19 scheme) for 583m EUR
Loans and advances under public Covid-19 guarantee schemes
Payment holidays ndash by segment
bull Loans to customers excluding reverse repos (and bonds)
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichBelgium 77 25 7Czech Republic 21 22 7Hungary (opt-out) 17 128 37Slovakia 08 12 10Bulgaria 02 5 7Ireland 12 6 12
Status 30 Sep 2020 Loans grantedEUR m
obligorsk
KBC Group 583 7of whichSME 261Corporate 309
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group 137 198 9of whichMortgages 45 7SME 43 13Corporate 42 10
Status 30 Sep 2020 Loan deferrals grantedEUR bn
obligors
k
of total loan
portfolio
KBC Group (excl HU) 120 70 8of which
Mortgages 40 6SME 36 11Corporate 39 9
58
COVID-19 (49)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
OPTIMISTIC SCENARIO BASE-CASE SCENARIO PESSIMISTICSCENARIO
Virus spread and impact sufficiently under control thanks to continued social distancing and other precautionary measures avoiding the need for another lockdown period
Virus spread and impact sufficiently under control thanks to continued and possibly intensified social distancing and other precautionary measures avoiding the need for another full lockdown period
Virus reappears and continues to weigh on society and economy necessitating on-off lockdown periods that have a significant impact on economic activity
Steep and steady recovery from 3Q20 onwards with a fast return to pre-Covid-19 levels of activity
More moderate but still steady recovery from 3Q20 onwards with a recovery to pre-Covid-19 levels of activity by the end of 2023
Another (series of) shock(s) takes place leading to an interrupted and unsteady path to recovery
Sharp short V-pattern U-pattern More L-like pattern with right leg only slowly increasing
The Covid-19 pandemic continues to be the maindriver of the global economy The epidemiologicaldevelopments are far from good The number ofnew Covid-19 cases are rapidly increasing in manycountries Because of this uncertainty we continueworking with three alternative scenarios a base-case scenario a more optimistic scenario and amore pessimistic scenario
bull The definition of each scenario reflects the latestvirus-related and economic developments while wecontinue to assign the same probabilities as inprevious quarter 45 for the base-case 40 for thepessimistic and 15 for the optimistic scenario
bull The macroeconomic information is based on the economic situation in September 2020 and hence does not yet reflect the official macroeconomic figures for 3Q20 as reported by different authorities
Real GDP growth
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Euro area -67 -83 -116 87 52 -10 29 20 22 Belgium -61 -90 -111 91 51 -11 29 20 20 Czech Republic -61 -70 -85 62 47 13 28 30 33 Hungary -30 -62 -120 40 50 40 35 35 35Slovakia -65 -80 -95 66 61 16 45 35 38 Bulgaria -40 -80 -120 40 50 40 30 30 30 Ireland 00 -50 -100 50 40 10 30 35 25
2020 2021 2022 bull For the euro area we haverevised GDP growth for2020 upwards to -83and mechanically thisless negative outcome for2020 translates into adownward revision ofgrowth to 52 for 2021
59
COVID-19 (59)
IFRS 9 scenarios
Macroeconomic scenariosSeptember 2020
Unemployment rate
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 66 72 78 70 76 110 60 69 95Czech Republic 43 51 61 42 54 73 35 48 68 Hungary 48 61 75 42 56 75 40 48 65 Slovakia 75 90 100 80 100 120 70 80 105 Bulgaria 60 80 110 43 100 130 42 70 120 Ireland 80 110 200 60 70 160 50 60 120
2020 2021 2022
House-price index
Optimistic Base Pessimistic Optimistic Base Pessimistic Optimistic Base Pessimistic
Belgium 15 -05 -15 10 -30 -60 25 10 -20Czech Republic 53 48 35 10 -08 -40 41 20 -08 Hungary 40 20 -75 10 -10 -50 31 20 -10 Slovakia 65 50 20 10 -10 -50 30 20 -05 Bulgaria 05 -20 -30 10 -10 10 30 30 15Ireland -20 -70 -120 40 35 0 40 35 10
2020 2021 2022
60
COVID-19 (69)
Steady staging of loan portfolio
bull As disclosed during previous quarters our Expected Credit Loss (ECL)models were not able to adequately reflect all the specificities of theCovid-19 crisis or the various government measures implemented inthe different countries to support households SMEs and Corporatesthrough this crisis Therefore an expert-based calculation at portfoliolevel is required via a management overlay
bull In the first quarter this calculation was limited to a certain number of(sub)sectors In the second quarter driven by significant uncertaintiesaround the Covid-19 crisis the scope of the management overlay wasexpanded to include all sectors of our corporate and SME portfolio aswell as our retail portfolio
bull To be consistent with the second quarter we recalculated the Covid-19ECL based on the same methodology used on the performing and non-performing portfolio by the end of September 2020 but including thelatest economic scenarios
bull Until now only minor PD shifts have been observed in our portfoliowhich is reflected in stable staging percentages Note that in line withECBESMAEBA guidance any general government measure grantedbefore the end of September 2020 has not led to automatic staging
Total loan portfolio by IFRS 9 ECL stage
Loan portfolio
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
852
FY19
113 10735
860 854
33
1Q20
854
11334
1H20
Stage 3 11432
9M20
Stage 1
Stage 2
(in billions of EUR) YE19 1Q20 1H20 9M20Portfolio outstanding 175 180 179 179 Retail 42 40 41 42 of which mortgages 38 37 38 39 of which consumer finance 3 3 3 3 SME 22 21 21 22 Corporate 37 39 38 37
61
78
99
-2
234
43
150
-3
147
596
57
637
3Q20
2Q20
1Q20
9M20
121
845
52
1 018
Management overlay
Impairments on financial assets at AC and at FVOCI without any COVID-19 impactCovid-19 impact already captured by ECL models
Impairment on financial assets at AC and at FVOCI
Amounts in m EUR
Collective Covid-19 ECL = 784m
COVID-19 (79)
Impact of the collective Covid-19 ECL after 9M
Credit Cost (annualized)
FY19 3M20 1H20 9M20
Without collective COVID-19 ECL 012 017 020 017
With collective COVID-19 ECL 027 064 061
Collective Covid-19 ECL not annualized
bull The updated assessment of the impact of Covid-19 on theperforming and non-performing portfolio after 9M20 (see detailsin following slides) resulted in a total collective Covid-19 ECL of784m EUR (q-o-q release of 5m EUR) of which
bull a total management overlay of 637m EUR with a -2mEUR release being booked in 3Q20
bull the ECL models captured an impact of 147m EUR after9M through the updated macroeconomic variables usedin the calculation resulting in a q-o-q release of -3m EUR
bull The total collective Covid-19 ECL of 784m EUR in 9M20 consistsof 6 stage 1 85 stage 2 and 9 stage 3 impairments
bull Including the collective Covid-19 ECL the Credit Cost Ratioamounted to 061 in 9M20
bull We are reiterating our estimate for FY20 impairments (onfinancial assets at AC and at FVOCI) of roughly 11bn EUR as aresult of the coronavirus pandemic Depending on a number ofevents such as the length and depth of the economic downturnthe significant number of government measures in each of ourcore countries and the unknown number of customers who willavail themselves of these mitigating measures we estimate theFY20 impairments to range between roughly 08bn EUR(optimistic scenario) and roughly 16bn EUR (pessimisticscenario)
62
COVID-19 (89)
Collective Covid-19 ECL in more detail no major change in the classification of sector risk
bull Aligned with the credit risk view of our loan portfolio as reported in the quarterly financial statements
SME amp Corporate loan portfolio of 104bn EUR broken down by sector sensitivity to Covid-19
36
23
41
Medium
Low
High
10
47
35
29
33
1219
12Building amp construction
33
9M20
Commercial real-estate
Distribution(retail amp wholesale)
Automotive
Services(entertainement leisure amp retirement homes)
MetalsShipping (transportation)Hotels bars amp restaurants
Sum of other sectors lt 1 (incl Aviation sector) No major change in the sector split between high-medium-low risk compared to the previous quarterOnly minor reallocations of underlying activities fromlsquohighrsquo to lsquomediumrsquo or even to lsquolowrsquo risk Also very limitedshifts from lsquomediumrsquo to lsquohighrsquo risk situated mainly in thefollowing sectors
Distribution A minor share of activities related to the wholesale distribution of apparel was moved into the lsquohigh riskrsquo category adding to the already designated retail part (mainly retail fashion)
Services Increase in lsquohigh riskrsquo category driven by retirement homes mainly in Belgium
Metals The activity related to the manufacture of metal structures linked to the construction of non-residential buildings was shifted into the lsquohigh riskrsquo category
Building amp construction
In the previous quarter the entire portfolio was allocated to lsquomedium riskrsquo dueto the limited lockdown interruption as this was one of the first sectors torestart In addition the temporary unemployment cover provided by the Belgiangovernment tempered the impact Now in the third quarter a limited share ofactivities related to the construction of non- residential buildings was shifted intothe lsquohigh riskrsquo category
Aviation sectorAs in the second quarter both sectors categorised as lsquohigh riskrsquo but with a limited share of 03 both
Exploration and production of oil gas amp other fuels
Composition of lsquoother sectors lt1rsquo in more detail
63
COVID-19 (99)
Collective Covid-19 ECL in more detail q-o-q release of 5m EUR
Collective Covid-19 ECL per country
9M20Optimistic Base Pessimistic Probability
EUR m 15 45 40 weightedKBC Group 471 621 908 714 70 784 -5 746 43By country
Belgium 300 366 450 390 20 410 -3 378 35Czech Republic 95 143 198 158 9 167 9 152 6Slovakia 23 30 50 37 0 37 -3 39 1Hungary 24 38 82 54 0 54 -1 54 1Bulgaria 7 16 25 18 5 23 -5 28 naIreland 22 28 103 57 36 93 -2 95 na
2Q20 1Q203Q20Performing portfolio impact Non-
Performing portfolio
Total9M20
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